The FTSE 100 is being held back by its commodity-related companies, as the rest of Europe has a strong session.

Europe

The London equity benchmark has a relatively high exposure to the commodities markets, and the decline in BP, Rio Tinto, Glencore and BHP Billiton are keeping the index in the red.

The DAX is in positive territory but it has been drifting lower this afternoon as the possibility of a coalition being formed between the Christian Democratic Union and the Social Democrats has been taken a setback. Berlin chapter of the Social Democrat made it clear they are not in favour of a coalition as they voted 21 to 8 opposing the potential tie-up. The Germany economy has been performing well even though it doesn’t have a functioning government, but some political certainly would be welcomed.

JD Sports shares are in demand today after it issued an upbeat trading update, its second in four months. The company has benefitted from the new fashion trend of wearing sports gear instead of casual wear. The stock is up 6.7% today, and it traded at a six-month high earlier in the session.

BP announced that it will incur a $1.7 billion charge in relation to the Deepwater Horizon disaster. The change to the US tax system that President Donald Trump proposed doesn’t allow companies to net off their losses against their tax liability.

Provident Financial shares are down 11.9% after the company declared that its consumer credit division will incur a loss of £120 million. The company made a poor decision last summer to re-organise the loan collection business, and they are still suffering for it.

US

American markets were shut yesterday as the US celebrated Martin Luther King Jr Day, and they are making up for lost ground today. The Dow Jones, S&P 500 and NASDAQ 100 have all reached new record highs today, although we have seen a pullback.  

Citigroup shares are up 0.7% after the company posted better than expected earnings. The bank revealed fourth-quarter earnings per share of $1.28 while traders were expecting a $1.19. The revenue for the period was $17.3 billion, which was broadly in-line with expectations. The changes to the US tax laws have forced the bank to incur a tax charge of $22 billion. $19 billion will go on revaluing of tax assets, while the remaining $3 billion will go on bringing money from outside the US back home. In the long-term, tax reform will assist the company and that is why they hiked their dividend and announced a share buyback last year.

GE said it will be taking a $6.2 billion hit on account of a legacy issue at its insurance division. The company hasn’t undertaken any new business in the insurance sector in over 10 years. GE is talking about breaking-up the business, which would incur costs in relation to tax liability given the change in US tax law.

FX

GBP/USD is suffering as the British consumer price index (CPI) fell back to 3% from 3.1% in November. The fractional drop in the cost of living left traders worried that demand is cooling in the UK. It was interesting that the retail price index (RPI) actually edged up to 4.1% from 3.9%, so demand in the UK may be stronger than some traders initially thought. The pound has been pushing higher versus the US dollar since March 2017, and today’s pullback may attract new buyers.

EUR/USD came under pressure after Germany revealed a dip in CPI to 1.7% from 1.8% in November. The single currency has enjoyed a positive run since November, and the latest German CPI data encouraged profit taking. The European Central Bank (ECB) have a track record of being concerned about languishing inflation, and it could prompt them to keep their policy loose, which is playing into the weak euro.  

Commodities

Gold has been hit by the rally in the US dollar. The metal hit a four month high yesterday and today’s bullish move in the US dollar has given traders an excuse to take some money off the table. The strength of global equities is also a factor as traders are clearly in risk-on mode. Gold has had a positive run over the past month and the upward trend remains intact.

WTI and Brent Crude oil are lower today as traders take their profits from the strong energy market. Oil printed a fresh three-year high yesterday and today we are seeing traders unwind their positions. The wider rally in the oil market is expected to lead to higher production from the US. The American government predicts that production will top 10 million barrels per day, and look to churn out 11 million barrels per day in 2019.   

 

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