Equities in Europe and across the world are on a solid footing as sentiment shifts into a more optimistic mood as base commodities and oil have been bolstered by news of oil production decreases in the United States. Further contributing to the shift in sentiment is news out of China that foreign exchange reserves at the People’s Bank have fallen less than expected. This indicates that capital outflows out of China have abated relative to earlier in the summer when the rate of decline was more than double that of September’s and also signals that some of the continuing pressure on the PBoC to devalue the renminbi has subsided. Continuing onto Japan, we have seen a counterintuitive rally in the Nikkei while the Bank of Japan opted to maintain rates at its most recent meeting despite signs of broad weakness in the Japanese economy. This move has the yen losing ground versus its American, European and British counterparts while the uptick in commodity prices have seen the Aussie and Kiwi dollars strike a positive tone as the currencies of both commodity producers and emerging markets gain ground versus the greenback.
Positive manufacturing and industrial production figures released in the UK this morning have the sterling on the ascendance versus both its European and North American counterparts. This is a return to form for one of 2015’s strongest performing currencies yet also highlights pervasive weakness in continental Europe which has many market participants gambling that the European Central Bank may increase its stimulus program at its next meeting later this month. Despite the uncertainty regarding the trajectory of the European economy, the euro is gaining ground on the dollar while equities continue to rally as the 5 week high in Brent Crude has propped valuations of miners and oil producers.
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