Before the Bell: Softer start expected amid tighter restrictions
European stock markets closed higher yesterday as the sentiment was broadly bullish and the FTSE 100 gained the most ground by a long way. The UK market closed up 1.7 per cent, while the DAX 30 finished fractionally higher and CAC 40 posted a gain of almost 0.7 per cent.
Yesterday marked the first day of the Oxford University-AstraZeneca vaccine being distributed in the UK, and the sentiment was also helped by the recent news about the UK-EU trade deal and the $900bn US stimulus package, David Madden, market analyst at CMC Markets UK, tells City PM this morning.
“The slide in the pound helped the FTSE 100 outstrip its eurozone equivalents. In addition to that, mining stocks played a large factor in the upward move too, and that was on the back of a rally in the underlying metals,” Madden said.
Lockdown
Towards the end of the session the bullish mood faded a little as lockdown fears resurfaced. Germany’s lockdown was extended until the end of January. It was announced that Scotland would be entering a lockdown and it was reported that the British Prime Minister, Boris Johnson, would be making a statement at 8pm – dealers took that as a sign that tougher restrictions for England were on their way.
Johnson confirmed traders’ suspicions that England will go into lockdown and it looks as if it will be in place until mid-February or March. Italy has widened its list of restrictions and the lockdown will last until the middle of this month, Madden said.
Across the pond
US equities saw a lot of volatility yesterday as the S&P 500 and the Dow Jones set new intraday records in early trading but a few hours into the session the markets sold off. The major indices lost over 1 per cent. Loretta Mester of the Federal Reserve said that the policy will remain very accommodative for quite some time.
“In addition to that, the central banker said the US economy will slow down in the next two months and then the outlook will be more positive. The state of Georgia will be in focus because of a dual Senate race and the outcome will determine whether Republicans or Democrats control the upper house. The Democrats already control the lower house by a slim majority,” Madden said.
Chinese telecom companies
Overnight, shares in China Telecom, China Mobile and China Unicom rallied after the NYSE announced it would no longer delist the companies. That should help US-China relations. Trading in Asia is mixed and European markets are being called lower.
“The US dollar index endured a relatively large loss for much of the session and it fell to a level last seen in April 2018. Lately there have been some concerns that the US’s economic recovery is running out of steam,” Madden said.
Friday’s jobs report will be closely watched as it will give us a good indication of the strength of the labour market. The greenback managed to recoup much of the losses it incurred during the day. It seems the dollar benefited from the flight to quality play when US stocks suffered.
Sterling
Sterling had as great run in late December on the back of the UK-EU trade deal being reached and subsequently approved by both sides. “Yesterday was a different story as dealers booked profit and the CMC GBP Index dropped by over 1 per cent. Worries about tougher restrictions in the UK weighed on the pound too,” Madden noted.
Gold
Gold enjoyed a rally yesterday and it managed to hang onto its gains despite the recovery in the greenback.
“The yellow metal hit its highest level since early November. Silver and copper enjoyed a rally too,” Madden pointed out, adding that platinum and palladium saw a lot of volatility yesterday as the metals racked up impressive gains during the day but then sentiment turned in the afternoon.
Oil
Oil also saw a lot of volatility amid the OPEC+ meeting. The group of oil producing nations were discussing output levels for February but no agreement was reached and the talks will continue today.
“There was chatter that the existing output levels will remain in place. It was reported that Russia is keen to raise output but Saudi Arabia is not keen on such a move,” Madden concluded.