European equity markets are in the red, but they are off the lows of the session.
Europe
The tightening of monetary policy, and the projection of further tightening to come from the Federal Reserve yesterday has hurt investor sentiment. The US central hiked rates by 0.25% - meeting forecasts, and they cautioned about lower growth and inflation, while at the same time, suggesting two more hikes are in the pipeline for 2019. Traders are worried the US central will press ahead with monetary tightening plans against a softer economic backdrop.
Airbus shares are in the red today after it was reported the US has launched an investigation into allegations of bribery. The alleged misconduct stretches back to 2016, and the group could face fines in the several billions of euros. The stock has been in a downtrend since July, and a break below €80.00 might bring the €77.30 region into play.
Stagecoach has pulled the plug on its underperforming North American operation. The UK transport operator confirmed it will sell its North American unit to a private equity firm for £214 million. The London-listed firm wrote over £85 million in relation to the struggling business recently. The move will allow Stagecoach to draw a line under the unit, and focus on its UK rail and bus business.
Kier Group shares have fallen after it was announced that only 38% of shareholders availed of the rights issue. The group stressed that it managed to raise the £250 million required as the deal had been fully underwritten by a consortium of banks. Kier got what they wanted out of the deal, but it looks bad when only a fraction of the shareholders take up the rights – it suggests they are nervous. The construction group will use the proceeds to pay down debt as they feel banks have become cautious of the industry in light of Carillion’s collapse. The disappointing right issues adds to the sour sentiment in the sector.
US
The Dow Jones and S&P 500 are both in the red as investors are concerned the Fed are pursuing a dangerous battle of hikes rate in the face of a less rosy economic climate. The hike last night was expected, but the suggestion there will be two more hikes in 2019 while China and the EU are slowing down has left traders feeling uneasy. Some dealers are also wondering why the Fed are planning on further monetary tightening when they foresee slower growth and softer inflation. There was talk of a dovish hike going into last night’s meeting, and now dealers are more fearful of a possible US recession.
The jobless claims rate ticked up 8,000 to 214,000, and the Philly Fed manufacturing report dropped to 9.4 – its lowest reading in over two year, the latter report was worrying.
FX
The US dollar index fell to a level not seen since late November in the wake of last night’ s Fed update. Dealers are concerned the US will tightening its monetary policy when the economy is slowing down, and that might bring about even slower economic growth, or even a recession.
EUR/USD has been lifted by the dip in the US dollar. Today’s was a quiet day in terms of eurozone economic indicators, so the single currency’s move has been dollar driven. The news that Italy and the EU agreed a budget deficit deal yesterday is still assisting the euro.
GBP/USD has been helped by the strong UK retail sales, and the weaker US dollar. In November, UK retail sales jumped by 1.4%, which comfortably topped the 0.3% that increase that economists were expecting. The latest numbers were a major improvement on the 0.5% decline in October. The Bank of England members voted nine to zero to keep rates on hold, meeting forecasts.
Commodities
Gold racked up a fresh five-month high on the back of the slide in the US dollar. The metal has enjoyed a strong inverse relationship with the greenback throughout 2018, and the relationship is playing out today. The metal has been driving higher since mid-August, and a break above the $1,265 region, might bring $1,284 into play.
Oil is lower again as traders are still worried about oversupply and worries also persist in relation to future demand. The chatter about a global economic slowdown has increased in the wake of the Fed’s hike last night. Brent Crude and WTI have both dropped to a new 15 month lows today.
