Thursday 4 February: Today it is all about rising commodities and falling US dollar patterns as mining and resource based stocks have driven the FTSE 100 higher. Firstly, the confidence that four US rate hikes will happen during 2016 was dented as non-manufacturing data from the US yesterday demonstrated the sector was growing less quickly than expected. This weakened the US dollar against major currencies, (-1.6% vs € and -1.2% vs GDP). A weak US dollar typically drives commodity prices upwards (commodities tend to be priced in US$), which has driven mining stocks forwards in the UK today. During intra-day trading, Anglo American led the FTSE 100 with more than 23% gains, with Rio Tinto, Antofagasta and BHP Billiton all surging ahead with more than double digit gains.
A cut in forecasts for economic growth in the UK from Mark Carney in the Bank of England’s (BoE) latest inflation report led to the pound falling against both the Euro and US dollar. Echoing a similar story from other central bank leaders, the chief of the BoE pared back domestic growth and inflation expectations as global markets continue with turmoil, oil prices continue to collapse and emerging markets struggle. Only last week the Bank of Japan (BoJ) cut interest rates, whilst the European Central Bank (ECB) has previously hinted at further cuts to come. Following the first rate hike in the US in December, guarded comments from NY Fed Governor William Dudley put forth to warnings of tightened financial conditions since the rate movement and warned the Fed should take these into account come the next meeting in March. Back in the UK, the central bank said its Monetary Policy Committee had voted 9-0 to keep rates on hold (previously the vote had been 8-1 since August, with member Ian McCafferty voting for a rate rise). The pound reversed its losses to stand at 1.46 vs the US$ and 1.30 vs the Euro at the time of writing.
Royal Dutch are the latest of the oil giants to report a fall in profits on the back of falling oil prices. The Anglo-Dutch multinational oil and gas company reported profits of £1.8bn for Q4, but this is compared to a $4.2bn profit for the same time period in 2014. The group announced they are set to cut 10,000 jobs in order to reduce costs while oil is so low. However, they have committed to maintaining its $1.88 dividend payout to shareholders , news that pleased investors, driving the share price north of 6% during trading.
Brent oil continued with its second day of inclines to surge forward over the course of Thursday’s trade, rising more than 3%. At the time of writing, brent oil has fallen back slightly, up 0.6% at $34.50 p/bl. Gold continued to drive forward, increasing by more than 1.3% to now have made gains of more than 7% since the turn of the year.
At the close European indices were mixed with the FTSE 100 +1.1%, the CAC 40 flat, and the DAX -0.4%. In the US the Dow Jones is flat whilst the S&P has slight declines of -0.2%.