Market Comments

In mid-morning trading the FTSE 100 is broadly unchanged as the Fed minutes didn’t give us any new information.

European equity markets are mixed this morning as the minutes from the Fed left traders uneasy about an interest rate rise in the coming months. The US central bank was intentionally vague over when rates will begin to rise. June is off the radar but dealers were left in no uncertain terms that a rate hike is on the horizon. Broadly speaking, equity markets are relatively strong and traders are hesitant to buy in at these levels when a rate rise at the end of summer is looming.
Continental Europe continues to be worried about Greece, and a boost from the ECB’s front loading of QE is starting to be pared back by fresh Greek fears. Representatives from Germany and Greece are sitting down today to come up with a deal that will prevent the indebted nation from going bust next month. Athens is due to make a repayment in the first week of June, and if Greece can’t get its hands on the next bailout trance it will have no option but to default. Traders are becoming less fearful of Greece because it has a history of fudging some deal at the last minute, and the market is paying less attention to the boy who cried wolf. Disappointing manufacturing from China overnight has actually helped the mining sector in London. Meanwhile, commodity companies are welcoming soft economic data from China as Beijing is only too eager to throw money at the problem, and use all means necessary to boost its output.

We are expecting the Dow Jones to open 35 points lower, at 18,250, as the prospect of a rate hike in the next few months encouraged traders to take their cash off the table. The Fed minutes indicated there will be no rate rise next month, but the update wasn’t dovish enough to entice the bulls. Traders are now facing the reality that the days of record low interest rates will not last forever, and only the brave will remain long as the countdown to a rate hike begins.