Market Comments

Market volatility drops ahead of key FOMC minutes.

UK markets

European markets have taken on an unsurprisingly subdued tone today, where the hope is that this evening's FOMC minutes are somewhat more entertaining than those from the BoE this morning. While we did see a slightly more hawkish tone, the fact is that with the UK currently in deflation, it is highly unlikely that we will see rates rise anytime soon. The continued impact of yesterday's particularly dovish off-the-cuff comments from the ECB's Benoit Coeure and Christian Noyer has been relatively muted within equity markets as Greek fears continue to dominate. Today's announcement from Syriza spokesperson Nikos Filis that Greece would default unless a deal was reached by June 5, provided a clear public timeline for the conclusion of negotiations. Ultimately we know that the Greeks will not make it through June without substantial funding, yet it doesnt seem likely that there is a way to appease both creditors and Syriza which is driven by its perceived mandate to avoid austerity. Something has to give and ultimately the ace card is with the ECB and IMF on this one, meaning a referendum could be around the corner.

Initial jubilation from Marks & Spencer shareholders has been tempered somewhat despite the long due news that the firm has turned a corner to post its first rise in profits for four years. While the decision to subsequently reward long suffering shareholders by a £150 million share buyback scheme is welcome, there is a clear possibility that the recent shift in profits may be a short-term phenomenon. Renegotiated contracts can be great for the bottom line, but such gains are a one-off and soon the products need to stand on their own feet. Banks are back in the news, with yet another reputation busting market manipulation fine dished out by the UK and US authorities today as Barclays, JP Morgan, UBS, Citi, RBS and BoA have all taken the hit together, presumably to avoid being seperated from the pack and seeing a Bob Diamond-bashing backlash lick we saw with the Libor scandal. However, with most of these seeing substantial gains, it seems investors feared the worst and that cumulative $6 billion slap on the wrists is seen as a light touch.

US markets

US markets are cautiously tiptoeing towards today's FOM meeting following the new record highs seen in the likes of the Dow earlier this week. Janet Yellen's Fed can be as boring as brilliant at times, with markets not knowing if they are walking towards a party or a recital of a financial textbook when the time comes around. However, today seems like a day to leave your party hats at home, with the FOMC minutes likely to provide as many questions as answers. Was Q1 weakness solely a weather-based phenomenon? What is the exact data pickup needed to see a rate hike put back into play? Will inflation move back towards target in the near future? The truth is that the Fed probably doesnt know the answer to any of these questions and despite there being a clear possibility of a surprise today, there is also a high likeliness that this will be a bit of a non-event.

Target earnings were on point today, outperforming market expectations for both quarterly profits and earnings thanks in large part to a substantial increase in sales of high margin 'signature catergory' goods. An announcement that Target would resume share buybacks, two years after its abolition, points to the firm finally having recovered from the data breach crisis back in 2013.

Commodities

A third conscutive weekly fall in US oil inventories hardly lit a flame to oil prices as a muted and short-lived bounce higher points to the fact that despite reserves falling another 2.2 million barrels, there are still over 60 million barrels in US cushing stocks. With near all-time high levels of crude awaiting release onto the markets, alongside a whole raft of producers waiting to bring their operations back on board, I can only seen further downside in the price of oil in the coming weeks.

FX

US dollar strength appears to be coming back into fashion, with GBP/USD and EUR/USD seeing significant losses so far this week. The more hawkish tones from the BoE earlier have provided some minimal support to sterling prices, but with the month long resurgence in both currency pairs seemingly under fire, it is possible we could see the dollar strength becoming the main story once more.