The rally in the dollar is petered out
Spanish markets are the talking point amid investors
The EZ economic data is supporting the ECB stance
European markets and US futures are fragile as the process of picking a new Fed chief looms. The fresh trigger for the dollar rally would be the new chairperson of the Federal Reserve. The rally in the dollar is petered out and it needs more tailwind otherwise things will start rolling backwards. President Trump has released the list of his favourite candidate who could be the chairperson of the Fed. To some investors, it was shocking that Janet Yellen is still a contender.
Yellen is generally dubbed as a dovish person by the markets and we know that her approach towards normalising the interest rate would be gradual. She is someone who is data dependent and she is not a fan of making any sharp manoeuvres. It is a fact that the Fed cannot afford a blunder but not all contenders have the same mind frame.
Some of them are way hawkish and could start pushing the interest rate higher more rapidly than others. It is significant to keep in mind that the affordability ratio is lower among consumers and a sharp increase in the interest rate would be the last nail in the coffin.
Back in Europe, it is your Spanish markets which are the talking point amid investors. It is no surprise that the equity market is getting hit hard and the Catalan government is further ranching up those concerns by opposing threats of declaring independence. The Spanish King Felipe was the last hope to dial back the tensions. However, it doesn’t appear there has been any vital effort to de-escalate the tension.
Although the King has more of ceremonial role to play rather than having any real power, he could have lent a hand to Rajoy by cultivating the path through which both sides could start a more constructive negotiation process. The King clearly lashed out Catalonian government response over the weekend and a miscalculated action would only cause investors to punish the Spanish equity markets further.
The economic data out of Europe is supporting the fact that the ECB has a green light to start the tapering process and the upcoming PMI number from Spain, France, Italy and Germany (due today) would not only strengthen the above argument but may actually provide some support for the Euro as well which has been beaten down against the dollar.
As for Sterling, the economic numbers are showing the dark effects of Brexit. For instance, the UK construction PMI printed an extremely abate number. This slammed the Sterling-dollar pair. Forget any change in the policy stance by the BOE if other economic numbers start to echo this message. Theresa May’s needs to make sure that her speech to conservative leaders stamps the fact that she is not a dead woman walking.
Stellar Performance By Tesco
For Tesco investors, hiatus period has come to an end as the company has finally restored its dividend, something which passive investors love the most. The firm reported another stellar set of earning numbers today with profit soaring and beating analysts’ forecast. The revenue was up 3.7% and like for like sales number also got a boost and increased by 2.2%. This is a tremendous performance because, remember, the UK consumers are heavily hunted by the Brexit woes and consumer buying power is heavily squeezed by higher inflation. For us, another encouraging sign in today’s earnings report was the reduction in the debt (nearly 25%), thanks to the marvellous job done by the management. We would continue to monitor the debt situation for the firm and for us it would be a sign of confidence if the firm outpaces the debt reduction number amid its peers.