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Dollar cure for European stocks summertime blues

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Gains by the dollar in the wake of the Federal Reserve chief expressing confidence in the US economy despite global trade war fears helped push European stocks higher on Wednesday.

The pound slid to a 2018 low at $1.3010 on receding prospects of a UK interest-rate hike next month after British inflation undershot expectations.

The pound has taken a knock this week also from uncertainty surrounding the future of British Prime Minister Theresa May as she struggles to unite a divided Conservative Party over the government’s Brexit strategy.

“It seems every time the Bank of England peers through an open window of opportunity to lift UK rates, economic and political headwinds blow it shut again,” traders London Capital Group said in a client note.

But a weak currency can be boon for exporters, and helped the major European indices push higher. London’s FTSE 100 climbed 0.7 percent in afternoon trading, with the CAC 40 in Paris adding 0.6 percent and the DAX 30 in Frankfurt rising 0.8 percent.

Across the Atlantic, Wall Street stocks rose modestly at the opening bell following a rally on Tuesday touched off by Fed chief Jerome Powell on offering a positive US outlook, citing a strong job market and inflation figures in line with the central bank’s targets.

“Powell’s testimony was music to investors’ ears as the Dow gained for the fourth consecutive day while the Nasdaq hit a new high-water mark” Tuesday, said Stephen Innes, head of Asia-Pacific trading at Oanda trading group.

Powell testifies before lawmakers again on Wednesday.

Powell also acknowledged on Tuesday uncertainty about the “outcome of current discussions over trade policy”, with US President Donald Trump hitting out at China and other economic partners as he adopts an aggressive “America First” policy.

Fears about an all-out China-US trade war continue to rattle investors, with both sides lodging counter-complaints at the World Trade Organization after recently imposing tariffs and threatening more on billions of dollars’ worth of goods.

Washington’s traditional allies Japan and the EU have also not been spared hefty US tariffs.

Elsewhere on Wednesday, oil prices extended losses after an industry group reported a surprise increase in US inventories. Brent crude struck a fresh three-month low at $71.23 per barrel.

Both main contracts fell following a report Tuesday by the American Petroleum Institute that US crude stockpiles had increased by more than 600,000 barrels last week.

After withdrawing from the Iran nuclear deal in May, the United States said it would reinstate sanctions on the oil-producing nation, and warned other countries to stop purchasing Iranian exports including crude.

But US Treasury Secretary Steve Mnuchin recently said that Washington would consider making an exception for certain countries that cannot immediately halt imports, adding further pressure on prices.

Traders will on Wednesday study oil inventory data from the US Energy Information Authority for a further indication of crude demand and supply.

“​​Oil has had some big falls. But every time it drops… there seems to be some sort of supply disruption news that puts the bid back in the market,” said Greg McKenna, chief market strategist at AxiTrader.

– Key figures at 1330 GMT –
New York – Dow: UP 0.09 percent at 25,141.28 points

London – FTSE 100: UP 0.7 percent at 7,679.40

Frankfurt – DAX 30: UP 0.8 percent at 12,766.82

Paris – CAC 40: UP 0.6 percent at 5,454.84

EURO STOXX 50: UP 0.8 percent at 3,485.33

Tokyo – Nikkei 225: UP 0.4 percent at 22,794.19 (close)

Hong Kong – Hang Seng: DOWN 0.2 percent at 28,122.75 (close)

Shanghai – Composite: DOWN 0.4 percent at 2,787.26 (close)

Pound/dollar: DOWN at $1.3043 from $1.3113 at 2100 GMT

Euro/dollar: DOWN at $1.1628 from $1.1662

Dollar/yen: UP at 112.85 yen from 112.84 yen

Oil – Brent Crude: DOWN 69 cents at $71.47 per barrel

Oil – West Texas Intermediate: DOWN 76 cents at $67.32 per barrel


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