Equity markets in Europe are mixed as traders look forward to the Federal Reserve meeting. 

Europe

The US central bank will release its interest rate decision at 7pm (UK time), and the press conference at 7.30pm (UK time) is likely to be the more important of the two updates. Rates are expected to remain on hold. Judging by the drive lower in US government bond yields recently, traders are anticipating dovish language from the Fed.  

Kier Group shares have recouped some of the ground that was lost in the past week. On Monday, the stock announced a restructuring plan, which entails selling-off its house building unit, and suspending its dividend in a bid to beef up its cash position. It appears that the dust has settled in the wake of the severe decline, and some bargain hunters are snapping up the stock.

Clydesdale and Yorkshire Banking Group (CYBG) said it now expects to save £50 million more than previously planned from the takeover of Virgin Money, and that should equate to savings of £200 million. The banking group reiterated its guidance for 2019, and the company still hopes to shake up the banking sector – an industry which was been dominated by a few major players for decades.   

Rio Tinto shares sold-off are the company confirmed that they are experiencing operational challenges in the Pilbara region, and it revised downward its iron ore guidance. The miner now anticipates shipments to be between 320 million tonnes and 330 million tonnes, while the previous guidance was for between 333 million tonnes and 343 million tonnes.

Saga Group shares tumbled to a new all-time low today after the company cautioned that margin would be hurt because of ‘competitive discounting’.  The company expects uncertainty in relation to Brexit to continue to hang over UK consumer sentiment. The company said it predicts that its cruise division will register a loss of £3 million in the first-half. Saga is not the only company in the tourism industry to suffer from a fragile consumer climate. Thomas Cook has had a string of profit warnings in the past year.

US

The major indices are mixed as the countdown to the Fed meeting begins. A portion of the rally in stocks recently has been on the back of the belief that the Fed will drops hints that rates will be lowered later this year. Some traders are overlooking the fact that the jobless rate is at a 50 year low and earnings are healthy, so the Fed might not be as dovish as some investors are predicting.

Adobe shares rallied after the company posted strong second-quarter results after the closing bell last night. Earnings per share (EPS) came in at $1.83, which topped the $1.78 forecast. The revenue figure topped the consensus estimate too, as revenue was $2.74 billion, and dealers were anticipating $2.71 billion. The company issued a guidance that slightly undershot forecasts, but traders and equity analysts have shrugged that off.  A string of investment banks have raised their price target for the stock in the wake of the update.  

Winnebago posted mixed quarterly figures. Revenue for the third-quarter dropped by 6% to $528.9 million, on a year-on-year basis, and the consensus estimate was $560.8 million. EPS was $1.14, which comfortably topped the 99 cents consensus estimate. The group cautioned that costs remain volatile.

FX

The US dollar index is in the red as traders await the Fed announcement. The US central bank are expected to deliver a dovish update – that’s what the bond markets have been pricing in, and some dealers don’t’ want to be long the US dollar going into the meeting.  

GBP/USD has been assisted by the dip in the dollar. The UK CPI rate fell from 2.1% to 2% in May, and the reading met economists’ forecasts. The core CPI update slipped too. It dropped to 1.7%, from 1.8%, and this highlights that underlying demand is dropping.

USD/CAD is in the red as the surge in the Canadian cost of living put added pressure on the greenback. Headline CPI jumped to 2.4%, from 2%, and the Bank of Canada core reading increased to 2.1%, from 1.5%. A spike in the price of fresh vegetables was cited as the driver of inflation.

EUR/USD is marginally higher after yesterday’s bearish move. Mario Drahgi, the head of the European Central Bank (ECB) issued a dovish statement yesterday. Some lawmakers in Germany described Draghi’s comments as ‘uncoordinated’ and that indicates not everyone holds the same views as the ECB chief.   

Commodities

Gold is a little lower this afternoon as dealers are looking ahead to the Fed announcement. In recent months there has been a strong inverse relationship between the metal and the greenback, and gold’s rally this month as been driven by the dive in the greenback, as well as the flight-to-quality effect. The Fed’s update later should give us a clue as to gold’s next move.

Oil saw a jump in volatility on the back of the Energy Information Administration inventory announcement. The report showed that US oil stockpiles dropped by 3.1 million barrels while traders were expecting a draw of 1.07 million barrels. Gasoline inventories declined by 1.69 million barrels and traders were anticipating a build of 935,000 barrels. OPEC and non-OPEC members will meet on 1 July and 2 July respectively.    

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

 

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.