Indices have suffered heavy losses this morning, continuing their retreat from recent highs, as risk aversion build across markets.
- Powell commits the Fed to long-term action
- Indices continue to give back recent gains
- FTSE 100 stocks broadly in the red
Stock markets remain deep in the red, and a cursory glance at market reaction to last night’s Fed would suggest that Powell was a major disappointment for investors. That is not really fair, however, since the Fed’s commitment to long-term support for the US economy is now stronger than ever. Quite apart from leaving rates in deep freeze for the next two years (at least), the clear message has been that the world’s most-powerful central bank is committed to repairing the damage to the US economy wrought by Covid-19, regardless of what markets do. Investors underestimate the Fed at their peril. But perhaps the lack of any fresh action meant that a short-term drop in stocks was all but guaranteed – the big question will be whether the 1000-point fall in the Dow this week will end up the previous ones since March, and simply provide investors with the chance to renew their commitment to this equity rally.
A weaker dollar has bolstered gold prices, which have enjoyed a rally as risk appetite for equities wanes, and with silver on the up for now too the FTSE 100’s few gainers are precious metal stocks. Aside from this, the index remains broadly in the red, although the moves have not been driven by any real news but more thanks to a resurgence in volatility that serves as a reminder that we are not back to the pre-February normal, whatever the price action in certain unstoppable US stocks might seem to suggest.
Ahead of the open, we expect the Dow to start at 26,332, down 657 points from Wednesday’s close.
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Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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