European equity markets are expected to open a little higher on Thursday, a day after the UK formally notified its partners of 44 years of its intentions to leave the EU.
The market reaction to the event was relatively muted in the end, something that wasn’t guaranteed given the sensitivity to Brexit related news over the last nine months, particularly in the UK. The pound, which has at times been very vulnerable to Brexit, saw some weakness in the lead up to the announcement – some of which was likely due to the Scottish parliament voting for another referendum – but only ended the session slightly lower.
FTSE seen higher as oil extends gains while GBP remains soft
This helped to spur on the FTSE yesterday, along with the rally in oil which rallied almost 2% on the day and has started today on a positive note as well. A smaller than expected rise in crude inventories last week was enough to trigger yesterday’s move, despite only falling a little short of forecasts and Tuesday’s API number.
Oil rally on smaller inventory build could be bullish signal
Brent crude prices fell quite sharply at the start of the month before consolidating around $50 a barrel, which proved itself to be a strong level of support. There were signs last week that it may take something significant to break this level when a near five million build in inventories triggered a strong sell-off into the $50 level before immediately reversing course and wiping out the losses. Given how little it’s taken to trigger a 2% swing higher, I wonder whether we’ve establish a temporary bottom in Brent. The next test comes around $52-52.50, with a break above this potentially triggering a move back towards $54-55.
USD rebounds after hawkish Fed remarks, more speeches to come today
The US dollar has experienced a slight rebound in recent days, aided by some more hawkish commentary from Federal Reserve officials. Yesterday John Williams and Eric Rosengren – neither of which are voters this year – alluded to the possibility of three more rate hikes this year while Charles Evans – who is a voter – was a touch more on the dovish side but still open to two further hikes and three if fundamentals improve. With two more officials due to speak today, it will be interesting to see whether we’re seeing another coordinated response from the Fed to lift rate expectations, with markets having recently pared them back a fair bit.
It’s looking a little light on the high impact data front again but there are still some notable releases scattered throughout the day. We’ll get some inflation data from Germany and Spain this morning, as well as some sentiment data from the eurozone. This will be followed later by final fourth quarter GDP data and jobless claims from the US.