Equities in Europe are firmly in the red, and even though we have seen a turnaround in the pound and the euro during the session, it had little impact on the equity benchmarks.
The losses that were racked in up early trading have only been slightly undone even though Wall Street is in positive territory.
Barclays shares are bucking the trend today after the bank posted a double digit rise in pre-tax profits, and a pledged to more than double the dividend next year. Earnings before tax rose by 23% to £4.5 billion, but analysts were expecting £4.7 billion. Traders overlook profits not meeting estimates as the future dividend will be generous. Barclays had took a few hits, and the exiting the African business cost them £2.5 billion. The mis-selling of PPI provision was £700 million, and the changes to the US tax regime has set the bank back £900 million. Like its peers, Barclays has seen revenue from trading the financial markets fall, and earnings from that division dropped by 15% - which is better than the industry average. The bank is well capitalised and the common equity tier 1 (CET1) ratio is 13.3%, which means it would be well positioned to withstand an economic downturn.
Centrica announced it will be cutting the workforce by 4000, and just over half of those will be in the UK. Iain Conn, the CEO stated the price cap was a factor in the restructuring. Mr Conn described the performance as ‘weak’, and profits fell by 17%. Centrica is under pressure from competitors, and it plans to tackle it by simplifying operations and investing in technology. The company hopes to trim costs by £1.25 billion by 2020. The share price is up 8.3% today, but has been in decline since 2013.
The Dow Jones, S&P 500 and NASDAQ 100 are all bouncing back after night sell-off. Traders have had time to digest the minutes from the Federal Reserve last night, and they are accepting that interest rates may be hiked at a faster pace than originally thought. A further tightening of monetary policy would suggest the US economy is performing well, and in the long-run it is positive news.
Also playing a role in the bullish move, was the slightly more hawkish than anticipated minutes from the European Central Bank. The update saw the greenback weaken and US government bond yields retreated too, which paved the way for higher stock prices.
US jobless claims fell to 222,000, from 229,000. It is worth noting that a reading of 216,000 in January was the lowest since 1973 so the US jobs market is clearly strong.
The US dollar index hit a 10-day high in early trading as the hawkish message from the Fed minutes still resonated the dealers, but the greenback has since pulled back on account of the slightly more upbeat minutes from the ECB meeting. US government bond yields have dipped in tandem with the US dollar.
EUR/USD jolted higher when the minutes from the latest ECB meeting showed that inflation expectations for the next few years were higher than previously stated. The single currency rallied on the back of the announcement, but some trader may have been jumping the gun, as the ECB is unlikely to wind down the stimulus scheme early.
It has been a volatile session for GBP/USD, as the downward revision to UK GDP put pressure on the pound, and then the broad sell-off in the US dollar drove it higher. The second-reading of the final-quarter GDP report was revised down to 1.4%, from 1.5% - which might temper expectations in relation to potential interest rate hikes in the UK.
Gold fell to its lowest level in over one week this morning, but has since bounced back as the weakness in the US dollar triggered short covering and bargain hunting. The negative move in gold overnight was a reaction to the US Fed minutes, and the subsequent turnaround was driven by the ECB minutes.
WTI and Brent Crude oil surged after US oil inventories declined by 1.61 million barrels, while the consensus was for a build of 2.47 million barrels.
Last night the American Petroleum Institute (API) revealed that stockpiles fell by 907,000 million barrels, and the previous report showed a build of 3.94 million barrels.
OPEC is to strike a deal with a Russian led group of oil producers in an effort to tighten their grip on the oil market. The Saudi led group and Russia currently have an agreement to curb supply until the end of the year, but it appears they are keen on pooling their influence, with the aim of having greater sway over the energy market.
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