Yellen comments reignite market love affair with stimulus
The market love affair with Fed stimulus continued today as European markets shrugged off this weeks’ growing pessimism to post gains as incoming Chair Janet Yellen gave her strongest indication yet that an accommodative stance will be held into 2014.
Yellen noted that the trigger for a reduction in stimulus would be an improvement in an Economy and Labor market still performing “well short of their potential” which investors have taken as a thumbs up to a few more hits of stimulus before the dosage starts to drop, satisfying market cravings enough for another move higher for now.
In the UK, Mark Carney has given a “2 in 5” chance of Unemployment hitting the all important 7% mark which may trigger a hike in interest rates by the end of 2014. While on the face of it this is yet another indication of the strength of the UK economy, it will also be a great worry to both current and prospective homeowners.
BOE’s Paul Fisher noted today that rates could eventually rise back to around 4-5% if inflation and growth move back towards target levels, raising concerns about the sustainability of mortgage payments, especially from those participating in the Government backed help to buy scheme. Whilst government backed mortgages do open up the housing market to a larger audience, the rates are markedly higher already, and sitting on a 95% debt pile if base rates were to tick up towards 4% might well signal the end of home ownership to many. You don’t have to look too far into the past to see the potential knock on effects of that…….
Ophir Energy was buoyant this morning following the announcement of the sale of 20% of its Tanzania blocks to Pavilion Energy for up to $1.2bln. Talks have been ongoing for the sale for some weeks, with the deal now easing any financing concerns from costs that piled up following drilling delays and hampered stock performance in prior months.
First half sales at Burberry group broke the £1bln mark for the first time following increased volumes from online purchases. Profits were marginally higher as well and the results are another welcome indication of the healthy position Angela Ahrendts leaves the firm in when she passes the reigns onto Christopher Bailey next year. The strength in online sales may also be a good omen for Apple, where Ahrendts will assume the role of SVP for retail and online stores.
WH Smith have reported Q3 sales down 3%, indicating a slowing pace of decline from Q2 but still highlighting the struggles that lie ahead for the firm. An emphasis on reigning in costs to offset a weaker market has been a successful defence thus far, having reported a 6% rise in annual profits last month.
Building materials firm SIG reporting a 2% increase in sales for the 4 months to October today buoyed by an unexpected pick up in European construction notably Poland. The firm said it is now on track to hit full-year targets.
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