Graduate Market Update

Central Banks: Currently we are seeing a global sell-off in the bond market  (which has spread to equities) amid fears that the post financial crisis era of cheap money from the world’s largest central banks is coming to an end. The markets refer to this as central banks ‘normalising’ interest rate policy i.e. bring rates back to normal and not the emergency low level of rates we have experienced since the financial crisis.  

While bond yields remain exceptionally low, recent remarks from the heads of the European Central Bank, the US Federal Reserve and the Bank of England have convinced many investors that the period of unprecedented central bank bond-buying (hugely supportive of bond prices) will soon recede.  

The main driver was comments by Mario Draghi, ECB chief, that the Eurozone was heading towards “reflation”, remarks that convinced some traders that Mr Draghi was planning to “taper” his EUR 60 bn-per-month bond buying programme.  

Bonds: European bond markets were hit hardest accordingly: The 10-year bond yields of Germany rose 10 basis points (0.10%) on Thursday to 0.45 per cent giving it an unusually high three-day increase of 20 bp and leaving it at its highest point since mid-May.

Equities: The negative sentiment bled into global stock markets, triggering the worst day for European equities since September, and the biggest fall for the US S&P 500 in more than a month.

Foreign Exchange: The US dollar index – a measure of the US currency against a weighted basket of peers – fell to 95.70 – significantly down from the 103.80 reached in January and beneath the low hit on the day the US presidential election in November. By definition, the EUR and GBP are all relatively strong versus the dollar with the possibility of low European interest rates coming to an end and, at the same time, investors losing faith, to a degree, with Trump’s ability to boost US economic growth (and therefore US interest rates) significantly higher in the short term.

Commodities: Oil prices rallied all week wiping out all of last week’s steep losses. The upside for oil remains capped by US shale production which has the flexibility to increase quickly on any move up in the price of oil above the $50/55 per barrel threshold; a level deemed to be profitable for such producers. Gold prices are relatively weak, at $1,245 per ounce as the prospect of global interest rates rising makes gold relatively unattractive as a non-interest bearing asset.     

Equities

S&P 500: 2425

Nasdaq: 6150

FTSE 100: 7310

Bonds – 10 Year Government Yields

US 2.28%

EU 0.47%

GB 1.30%

Foreign Exchange 

EUR/USD  1.1400 (1 euro buys 1.1400 dollars)

GBP/USD  1.300 (1 pound buys 1.300 dollars)

Commodities

OIL: Brent: 48.00 (dollars per barrel)

GOLD: 1245 (dollars per ounce)

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About Paul McCormick

Paul McCormick is the founder of Opening City Doors and is a Financial Market Specialist having worked for several leading Investment Banks and financial technology institutions additionally.He therefore provides a unique insight, and unusually broad perspective, into the opportunities available in London Financial Markets and related sectors and how to launch your career in the ‘City’.