Once again European indices are being influenced by China and this time it’s their GDP numbers that give cheer to investors back home. The number from China beat expectations rather impressively and so mining stocks quoted in London will be leading us higher this morning.
We’ve actually dipped somewhat from a higher opening call earlier this morning and it will be interesting to see if the Chinese can assist in helping the FTSE recover from the lows. Europe and China are hugely dependent on each other now with China being Europe’s second largest trading partner and Europe being China’s largest importer of their goods.
We’re already some 40 points above yesterday’s lows with the market neatly hitting 5400. For those who have been studying the FTSE 100 closely they’ll remember that the index struggled on several occasions in November in December to head above the 5380 to 5400 level so this is expected to provide good support for the index and we most certainly attract more buyers as we saw yesterday with clients buying enthusiastically across a lot of our indices.
Emerging markets are still a very important part of the overall global recovery so we can expect the news flow from China to continue to have a big influence on all stock markets. But with the US earnings season well underway there is still substantial focus on how corporate America is performing. So far the financial sector has failed to impress with BOA and Morgan Stanley missing expectations yesterday and today Goldman Sachs are due to report their numbers. US financial stocks are not being assisted by Obama who seems to be waging war on them and now wants to restrict certain trading operations which will most likely effect Goldman more that anyone else since they have such a large proprietary trading operation.
Currency markets are relatively quiet this morning but the dollar just has the edge once again. EUR/USD seems to have found a bit of a platform around the 1.4100 level and we’re just tentatively below there this morning. The 1.4000 is expected to hold up if we get down there which is where the 50 period moving average is sitting on the weekly chart. We also saw a lot of congestion around this level in June and July last year so it could provide quite major support in this area.
Sterling has benefited well from the woes of the euro and Bank of England minutes today will be a closely watched. The surprise jump in inflation this week has pretty much given the Bank enough evidence that the stimulus has to stop. UK inflation should be capped and this should only be a temporary spike with the VAT hike also applying pressure, but the UK’s growth prospects do not warrant inflation to remain higher for long. At 9.30 this morning we’ll glean more from the Bank when the minutes are released.
The dollar bounce has taken its toil on gold which suffered a sharp fall yesterday. This is yet another indication that sentiment towards the US currency is improving and even though equities have recently hit 15 month highs recently, last years correlation between a falling dollar and rising equities continues to look like reversing. Around 1114 this morning but below both the 20 and 50 moving average support for the precious metal looks precarious.