European stocks edged toward consecutive daily gains for the first time in three weeks today, drawing support from a weak euro as investors moved to price in a U.S. interest rate rise, boosting the dollar.
Bad news is good news for the markets that rely on central banks’ support--and so it proved again this morning’s as the latest European data disappointed expectations, yet the major stock indices rallied as if everything was just fine. The rationale is that weakness in data will ensure that the likes of the European Central Bank and the Bank of England will maintain their uber-dovish policy stance for longer. Their actions would keep bond yields depressed, underpinning higher yielding assets like equities.
In a speech last week, New York Fed Chief William Dudley said they could raise rates as soon as September. After all, the jobs report was so good how could they resist? Well, that was Tuesday and the markets didn’t like it. But the rest of the week was more or less flat because we’ve all seen the Fed’s various chiefs play bad cop to Fed Chair Janet Yellen’s good cop every 6 weeks or so.
This week saw data from the UK surprise positively and the severally-oversold pound bounced back sharply, while the dollar fell across the board as the Fed watered down rate hike expectations in the minutes of the FOMC’s last meeting and after some weakness in U.S. data was observed, causing the Euro/U.S. dollar (EUR/USD) currency pair to climb to its best level since June 24.
European stocks have started Tuesday’s session on the front foot after a lacklustre performance on Monday. Sentiment remains upbeat for global equities mainly because of the actions of central banks, rebounding oil prices and the mostly better-than-expected U.S. corporate earnings results.
World stocks fell for a third straight day today, depressed by growing nervousness surrounding central bank policy and the spike in world bond yields, although European bank shares rebounded after two major earnings reports.
Markets have thrown a curve ball, as not only have they recovered from the Brexit losses, but the S&P 500 is on the cusp of a new all-time high. It makes world markets very complex. Who is really driving the bus? The SPX could be at all-time highs but the SSE remains 42% off its 2015 high and only 13% off its January low. The DAX remains light years from the 2015 top while the FTSE has been able to make it to the drop zone from last August where all the trouble really started.
World stocks tumbled and European bank shares were on track for their biggest ever two-day fall today as the political and economic fallout of Britain's shock vote to leave the European Union drove sterling to a fresh 31-year low against the dollar.