Europe outperforms, Wall Street dips
Equity markets in Europe are pushing higher again as the bullish mood continues to circulate. The standoff between Ukraine and Russia is still ongoing, but many in the international community, including the UK, have been quick to show solidarity with Ukraine, and that seems to have taken some of the heat out of the situation. It is also worth noting that European stocks didn’t fall too much amid last month’s bout of selling, which was driven by fears the Federal Reserve would hike rates several times this year. US indices suffered relatively large losses last month due to concerns the Fed might be too aggressive when it comes to tightening monetary policy this year. Yesterday US stocks posted major gains, in fact the NASDAQ 100 rallied over 3%. Today, it is a different story as the NASDAQ 100 is down 0.5% as it seems that yesterday’s move was excessive. Although US equities are down on the session, they are still comfortably above the lows of last week. While American stocks are handing back some of the gains recorded yesterday, European markets like the FTSE 100 and the DAX are both up 0.8%.
The US ISM manufacturing report for January was 57.5, which was a slight dip on the 58.8 registered in December. The finer details of the update were mixed as new orders slipped to 57.9 from 61, and the prices paid metric jumped from 68.2 to 76.1. It is not a good situation when demand is sliding but costs are still increasing, it is the sort of environment that could bring about stagflation. There was some positive news in the announcement as the employment reading ticked up to 54.5 from 53.9. Rising inflation is a major reason behind the Fed’s hawkish stance, and seeing as manufacturing costs are still climbing, it looks as if inflation will be in the news for the foreseeable future.
The Reserve Bank of Australia kept rates on hold at 0.1%, meeting expectations, in addition to that, the bank confirmed it will end its quantitative easing programme this month. The bank announced there is uncertainty in relation to inflation once the supply side problems are resolved – this suggests the bank is not overly keen to start hiking rates as costs might come down as operations and logistics return to normal. The overall risk-on attitude in the markets has boosted commodities such as copper, and that in turn has helped the Australian dollar. AUD/USD fell to an 18-month low last Friday, so bargain hunters have been quick to step in. Gold is trading above the $1,800 mark as the dip in the US dollar his helping the yellow metal.
