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Powell speech keeps the hawks at bay

European stocks spent most of today treading water, ahead of this afternoon’s comments from Fed chair Jay Powell, before breaking higher in the aftermath of the speech.
 

Europe

The clear delineation between the Fed's inflation mandate and its employment mandate, has reassured markers. Additionally, the reinforcement of the message that tapering is not tightening, and merely a reflection of the improvement in the economy has helped reassure markets that the central bank is not going to be hasty in removing accommodation.

This message has helped deliver the FTSE 100 to a positive week, with basic resources leading the gainers, with the likes of Anglo American, BHP and BP leading the gainers on the back of firmer commodity prices.

On the downside, Just Eat shares have dropped sharply after authorities in New York approved legislation to cap the commissions delivery apps can charge restaurants to 15%. Just Eat has only just completed the acquisition for GrubHub, which helped boost its H1 numbers when it reported ten days ago. The move by NY authorities will certainly act as a significant headwind to the company’s ambitions to curb its losses quickly, if pushed through.

Sainsbury's shares have continued to give up their early week gains as it becomes apparent that no bid is imminent after the speculation on Monday that private equity group Apollo was giving the business the once over.  

US

US markets opened higher today, despite a plethora of Fed speakers coming out and making the case for the paring back of monthly asset purchases. There appears to be a growing consensus that asset purchases are not the right measure for what is essentially becoming a supply problem, as opposed to a demand problem, and Powell’s comments don’t appear to run counter to that, however unlike his colleagues he doesn’t appear to be in any rush to start tapering quite yet.

His comments that a taper will be appropriate by the end of the year, suggest that while Powell is in no hurry, other FOMC members will still need further data. Given today’s comments by regional Fed presidents that they want to get on with the process, a good payrolls numbers next week could make for an interesting meeting on the 22 September. US stocks have taken these comments on board and once again set new record highs, with the S&P 500 cracking above 4,500 and a new record high, while US 10-year yields slipped back. 

The chain has come off in spectacular style for Peloton today after the company announced its Q4 earnings numbers, and Q1 guidance yesterday evening. On the headline numbers for Q4 revenues beat expectations, coming in at $936.9m, while subscribers rose to 2.33m, also a beat. It was the guidance that appears to have done the damage with the company downgrading its Q1 revenues to $800m below expectations of $1bn, as well as announcing that they would be cutting the price of the original bike by $400, which means that the company would probably make a loss of $285m in Q1. The company also said it had identified weaknesses in its internal controls with respect to the identification of inventory. In essence the company didn’t know how many bikes and treadmills it had in stock, not a great look.     

Cazoo completed its SPAC listing process with the Ajax I SPAC today, opening modestly higher on the day.

FX

The US dollar has given up some of its recent gains this week after hitting its highest levels this year on Monday, with the bulk of the losses coming against the commodity currencies of the Australian and New Zealand dollar which appear to have found a bit of a short-term base after a rebound in commodity prices.

Today’s hawkish commentary from the likes of the Atlanta Fed’s president Bostic, the Dallas Fed’s Kaplan and the Cleveland Fed’s Loretta Mester point to a direction of travel that points to the beginning of a taper by Q4, and which the US dollar appears to be taking in its stride, as it slips to the lows of the week.

The softer tone was helped by Fed chair Jay Powell’s comments that substantial further progress has been met for the central bank’s inflation threshold, however they still wanted to see further clear progress towards maximum employment. This leaves the road clear to discuss a tapering of asset purchases at the September meeting, to potentially start in November, but no imminent threat of a rate rise.

Commodities

Crude oil prices have moved higher after various oil companies’ shut down production in the Gulf of Mexico as Tropical Storm Ida moved in from the Atlantic. BP, Shell and BHP have all moved their workers from the platforms after first securing the rigs. Other companies are taking mitigating measures to secure their facilities.  The weaker US dollar has also helped to underpin this week’s rebound from three-month lows.

Gold prices have cracked back above the $1,800 an ounce level on the back of this afternoon’s sell off in the US dollar, as it once again looks to crack above the 200 day MA which has rebuffed this week's advances in the yellow metal.


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