Blink, and you missed it. After a stronger start, European bourses have quickly given up earlier gains. With the exception of the FTSE, which is finding support from a weaker pound, European indices are back in the red.
Concerns over the Fed reining in support for the economy and adopting a hawkish stance is once again unnerving investors. Equities took a hit last week after the Fed caught the markets off guard with its hawkish shift. While stocks rebounded yesterday from four-week lows, the rebound has been short-lived as the jitters return ahead of Federal Reserve Jerome Powell’s testimony before Congress later today.
Fed Powell’s pre-released comments attempt to reassure the markets that inflation is transitory. However, after last week’s surprise shift in the dot plot, the markets aren’t buying into the Fed rhetoric quite so easily. As a result, US treasury yields are ticking higher, as is the US dollar, while equities fall.
The FTSE is managing to sidestep the depressed tone dragging on the rest of Europe, maintaining gains on the day. Energy shares dominated the upper reaches of the FTSE, with the likes of BP and Royal Dutch Shell reacting to the late surge in oil prices yesterday.
Travel firms are also putting in a solid performance amid swirling rumours that double-jabbed Brits will be able to travel to amber list countries without having to quarantine on return to the UK. So naturally, any such announcement will be music to the ears of airline firms.
Looking ahead, US stocks are pointing to a subdued start on the open, after strong gains in the previous session and ahead of Fed Chair Powell’s appearance. The Dow booked its biggest one-day rally in three months on Monday. However, few are willing to add to those positions before hearing more from Powell.
FX – GBP slides despite improving public finances
After out-performing in the previous session, the pound is taking a hit today. Not even news that the government borrowed less than expected in May was enough to arouse sterling bulls.
Public sector net borrowing came in at GBP23.1 billion in May, down significantly from GBP30.1 billion in April and also ahead of the GBP26.1 billion forecast.
Net borrowing by the government dropped in May as the UK economy continued to re-open. As Covid restrictions were eased, the economic rebound meant that UK public finances were in better shape than expected. Rising tax receipts combined with lower government spending and fewer people on furlough meant the government spent less. However, putting the figure into perspective, it was still the second-highest amount borrowed for May since records began.
For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/