It’s a quiet start to the week in terms of the release of economic indicators, with no major US releases before Wednesday.
By Peter Martin
Monday, July 20, 2015
In the absence of domestic macroeconomic news, expectations for US monetary policy has been boosting the dollar and consequently shaping the course of commodity prices.
With the Fed expected to hike rates before the end of the year, capital has been flowing into the US dollar, while raw materials have been sinking, particularly gold. We have gone through an unprecedented cycle of quantitative easing from the key central banks since the financial crisis, and in this ultra-low interest-rate environment, gold has generally benefitted as an alternative investment. The prospect of higher US interest rates potentially ushers in a new phase though and against that backdrop gold has fallen more than 6% since the start of the year. In today’s trading alone, gold has slumped 2.1%, falling to $1110.3, earlier hitting a new five-year low.
The US dollar has generally strengthened today, advancing 0.22% against the Swiss franc and 0.18% against the Japanese yen, while GBP/USD slid 0.31% to 1.5557. An exception is the euro, which gained 0.12% against the dollar to 1.0841, as Greece re-opened its banks after agreeing a new cash-for-reforms deal with its international creditors. Though capital controls are still in place and the Greek stock market remains closed, this is a significant step on a path to something resembling normality for the debt-beset country after weeks of appearing on the brink of an exit from the euro.
Earnings are also very much in focus as the US earnings season continues in full swing. Following on from the earnings-led surge in Google on Friday, which pushed shares in the company above $700 for the first time, there is a sense of optimism in the market that other tech stocks might follow suit. IBM, which has massively underperformed the S&P 500 Index in the last year, reports after the closing bell on Monday, while fellow Dow components Microsoft and Apple announce post-market on Tuesday.
Financial and banking stocks have also been performing strongly, a trend furthered by Morgan Stanley topping expectations. The wealth management giant rose close to 2% after reporting profit of 85 cents per share earlier this morning, versus a consensus estimate of 79 cents.
Stronger earnings helped the major indices to a positive close on Friday, including the highest level for the NASDAQ 100 since the tech bubble, but it was a tentative opening on Monday, with stock prices little-changed overall from the previous close. Shortly after the opening, the Dow Jones was up 7 points or 0.04%, while the S&P 500 Index gained just 0.02% at 2127.1. The NASDAQ 100 rose 0.10% to 4666.2.
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