As we come into the last day of the month, equity markets remain pinned to their recent levels. A sign perhaps that money managers are unsure how they should be reacting to the current information overload.
Geopolitical tensions remain at the top of the agenda, as US and Europe announced further sanctions against Russia. Alongside the increase in tensions between East and West, the hostilities from between Israel and Gaza show no signs of abating. So far the oil price has not reacted to rise in strains around the globe, it may be that oil traders are focusing more on the threat to global growth as opposed to the potential for supply disruption.
The better than expected second quarter GDP report came out before the confirmation by the Federal Reserve that they are tapering by another $10bn this month. Ahead of today’s announcement financial commentators have been highlighting the flattening of the US yield curve. This is the term given to the difference in yield offered between the shorter and longer dated bond maturities, the gap between five-year treasury maturity and the ten-year is the closest for the past five years. A flattening yield curve (the gap between the yields narrows) signifies a concern that the economy is weakening. On Wednesday ten-year treasury yields rose from 2.45% to 2.56%, this signified a slight steepening, but not by much as yields on the five-year rose by almost as much.
The US dollar, which has been trading in a tight range for nearly the past year, has now broken that trading range to the upside. Those who plan to go on holiday soon to places that require US dollars, may want to get to their nearest currency exchange sooner than later as the pound continues to weaken against the currency.
Fund managers and traders continue to focus on a slew of earnings reports; the good news is that the earnings season remains robust. In the US of the 400 companies reporting on Wednesday, positive surprises beat negative ones by approximately one-third. One exception was UPS, the parcel delivery company, whose earnings report can be considered a bellwether on the consumer, the more parcels are being delivered the greater the consumer spend and in theory the stronger the economy. On Wednesday UPS reported lowered guidance, but laid the blame on investment for the upcoming Christmas period.
Just to complete the picture on Wednesday, Europe reported consumer confidence and industrial sentiment data. Both came in slightly ahead of expectations, recent news from the region has been modestly encouraging. Thursday sees the latest inflation report for the region, lets hope the recent uptick in fortunes continues.