Equity Market Recovery Continues

Recovery in the equities market continued on Thursday. The FTSE held onto strong gains across the day, led higher by miners, as commodities continued to benefit from the weaker dollar and South African stocks Modi and Old Mutual.  

South African Firms Higher on Zuma Resignation 

Mondi and Old Mutual are trading over 3% higher following the late-night resignation of ANC rival Zuma, ending 9 years of stagnant growth, mismanagement and in desperate need of revival. The news has given Mondi and Old Mutual a boost as investors hope that economic reform will pave the way to a more solid economic backdrop for the firms. 

US extends gains 

The US has opened on the front foot again, as Wall Street sets itself up for a fifth straight day of wins. The S&P has clawed back over half of its 10% loss since closing in correction territory one week ago. Investors are piling back into equities after fears of higher interest rates and recent volatility have both eased. With the market showing signs of having carved out the bottom and optimism seemingly back on the agenda, bargain hunters are seeing this as a good time to jump in. 

Dollar remains under pressure despite higher PPI 

The dollar has continued to sell off as investors shrug off yesterday’s closely watched inflation figures. Fears over rising inflation have evaporated almost as quickly as they appeared. Even today’s US PPI data, measuring inflation at wholesale level, coming in stronger than forecast failed to cause a stir in the dollar. 

US PPI for January is up 2.7% year on year in January, whilst core PPI has increased 2.2% year on year. When PPI moves higher it is usually a sign of higher consumer inflation down the road. 

Interestingly the markets have taken this news in their stride suggesting the higher interest rate fears are receding. The dollar has bounced off overnight lows at $88.60, however the bears remain firmly in control.  

The uptick in the dollar following the PPI release has knocked EUR/USD further from its near-term target of $1.25, although still some 30 pips higher on the day.