A week on from last Wednesday’s sharp impeachment-inspired sell-off in risky assets and the recovery across markets seem to be running out of steam. Movement in European equities was below average before the release of minutes from the last meeting of the Federal Reserve. Chinese stocks and the renminbi were lower after Moody’s downgraded the country debt for the first time in 30 years.
US stocks opened slightly higher and remain in the vicinity of record high territory. Wall Street has recouped last Wednesday’s sudden losses but needs a catalyst to take the next leg up. Fed minutes and the OPEC meeting are two such potential catalysts. Donald Trump’s growth agenda is down but not out and European growth is picking up some of the slack so investor confidence is in the right place for further gains.
FTSE gains stand out
The FTSE 100 stood out from a crowd of weaker performance from benchmarks in mainland Europe. A lackluster British pound, which has struggled to build on its election gains in the last week softened the blow of a series of poorly received corporate updates from the likes of Marks and Spencer (LON:MKS) and B&Q owner Kingfisher (LON:KGF). Early alarm at China’s debt downgrade by Moody’s eased by the afternoon with China-sensitive mining stocks well off lows of the day.
M&S shares reversed opening losses since the car crash 64% annual profit drop was thanks to a one-off hit from costs associated with chief executive Steve Rowe’s turnaround effort. Shares of Glencore (LON:GLEN) may have been caught up in the broader sell-off in Commodity stocks but a late session recovery suggests investors are comfortable with the informal takeover offer for rival grain trader Bunge (NYSE:BG).
Markets expect a hawkish Fed
The consensus expectation is for the FOMC minutes to come down on the hawkish side and aid the expectation that there will be two more hikes this year and more talk of balance sheet shrinkage thereafter. Should the minutes turn out a little move dovish than expected, perhaps mirroring the kind of concerns at the ECB at the impact of unwinding stimulus, markets could come unstuck.
Central Bankers scared of QE unwind
The euro teetered underneath recent highs as ECB officials talked down inflationary pressures even as European data impressed again. German consumer confidence rose to a new 2-year high according to a survey by Gfk. The message from the ECB financial stability review was that policymakers are well aware of the risk of ending quantitative easing. It’s perhaps no surprise that ECB policymakers have been cautious about acknowledging the uptick in inflation because of its implications for QE.