European stocks have soared as it appears the European Central Bank (ECB) won’t be hiking interest rates until at least the back end of 2019. 

Europe

Mario Draghi, the ECB chief, confirmed the stimulus package would be wound down in 2018, and we could see a taper of the bond buying scheme in the final quarter of this year. The update was far more dovish than some traders were expecting, and the euro sold off heavily on the back of it. The slide in the single currency prompted buying of eurozone equities.

Rolls Royce shares are higher today after the company announced a restructuring plan. The firm will cut 4,600 jobs in a bid to save £400 million per year by the end of 2020. Support services and management roles will be reduced by 10%. The excess cash will be used to invest in electric propulsion and digital technologies. The company is holding an investor day tomorrow, and dealers will want to hear what the plans are to generate income after 2020. The share price is hovering around its 200-day moving average at 872p, and a break above that mark could bring 953p into play.

Majestic Wine shares experienced low volatility after the company announced respectable full-year figures, but it also issued a cautious outlook. Sales and pre-tax profit rose by 2.3% and 33% respectively. The total dividend was upped by 40%. The retailer is aiming to maintain a progressive dividend policy, but cautioned that investment might take priority in the medium term. Majestic Wine warned that a tougher consumer climate and online competition might dent earnings this year.

US

Equity markets in the US are mixed as the rally in Europe is boosting sentiment across the Atlantic. The optimistic assessment of the economy by the US central bank has also given traders a reason to be bullish.  

The Federal Reserve hiked interest rates last night by 0.25%, meeting estimates. Jerome Powell, the chair of the Fed, gave a hawkish outlook. Traders now thin we could see two more rate hikes this year. Mr Powell is content with the solid economic growth, but expressed concerns about the prospect of a trade war. The Fed chief talked about companies holding off on expansion plans due to the political uncertainty surrounding tariffs. It sounds like the policies of President Trump pose a bigger risk to the hiking cycle than the economy.

21st Century Fox shares are higher today after Comcast put in a $65 billion bid for most of the company. Disney were already trying to acquire the bulks of Fox’s assets, and now it appears the ball is in their court. A bidding war could ensue, and Fox shareholders are likely to benefit.

US retail sales in May jumped by 0.8%, while economists were expecting an increase of 0.4%. The April report was revised higher to 0.4% from 0.3%. This underlines the rise in demand.

FX

EUR/USD is under severe pressure in the wake of the ECB meeting. Going into the meeting there was a lot of talk about Mario Draghi laying the groundwork for the stimulus package to be wound down this year, and then to signal an interest-rate hike. Now it appears the ECB won’t be increasing interest rates until at least the back end of 2019, and they might not even hike then. The solid US retail sales added to the euro’s woes.

GBP/USD had a good run in the morning as the UK announced impressive retail sales figures. Last month, UK retail sales jumped by 1.3%, which easily topped the consensus estimate of 0.5%. The April report was revised to 1.8% from 1.6%. The stellar sales figures sent the pound higher. The greenback gained dominance on the currency markets due to the plunge in the euro, and GBP/USD is lower on the session.

Commodities

Gold is higher today despite the surge in the US dollar. Recently there has been a strong inverse relationship between the two markets, but not today. Last night the Fed suggested two more rate hikes this year, but that is still dependent on the economy and international affairs. If gold retakes the 200-day moving average at $1,307, it could target $1,326.

WTI and Brent Crude oil are lower today after the US confirmed yesterday that its production reached a record level. The increase in shale producers in the US has helped production reach its highest on record. Russia is the largest producer in the word, but the US is closing in on them. 

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