Strong Earnings Help Lift Sentiment Ahead of FOMC

European bourses broadly moved higher on Wednesday. Markets breathed a sigh of relief over Apple’s results and encouraging China related news, which overshadowed rekindled Brexit nerves.

European bourses broadly moved higher on Wednesday. Markets breathed a sigh of relief over Apple’s results and encouraging China related news, which overshadowed rekindled Brexit nerves. 

The FTSE led the charge higher with triple digit gains, after the pound sunk 1% overnight following the Brexit vote in Parliament. Although the pound had clawed back most of those losses by midday. As usual the multinationals on the FTSE, which also book revenue in dollars, were fairing well, whilst the more domestically focused firms lagged behind.

US – Sino trade talks 
Concerns over a slowdown in China have weighed on sentiment in recent sessions. So today’s record earnings by luxury retail LVMH, showing that Chinese demand remained strong was tonic for the markets. Particularly as the focus shifts towards US – Sino trade talks which begin today in Washington. The risk on sentiment evident in today’s trading shows that investors are optimistic that there will be some progress in these high-level talks. 
As with a lot of risk events recently, the market is looking overly optimistic at these levels. With the clock ticking towards the 2 March truce deadline, there has been little indication from the Chinese that they are willing to address the core issue – US IP. This leaves us doubtful as to whether the world’s 2 largest economies will be able to reach a deal.

Apple rallies on better than feared results
Improved sentiment helped US markets opened higher, with Apple jumping 4.5% thanks to better than feared results. Earnings released after the bell on Tuesday saw revenue scrape in at $84.3 billion, ahead of the $84 billion forecast. Following earlier warnings over iPhone sales the markets had been expecting much worse

FOMC to rock the dollar?
Traders will now look ahead to the Fed’s policy announcement this evening. Whilst the Fed are not expected to raise rates, investor will be scrutinizing Powell’s speech and press conference for further clues over what to expect from policy this year. Any signs that Powell is considering pausing the central bank’s gradual rate hikes, could boost risk sentiment and send the dollar lower.

Policy makers have expressed the need to be patient with rate hikes this year, amid concerns over global growth and market volatility. The market wants to know how patient the Fed is prepared to be. At the end of last year, risk appetite was badly bruised when the Fed seemed willing to charge ahead with hiking, despite the market believing it was mis stepping. A more dovish Fed so far this year has helped stabilise risk sentiment, whilst hitting demand for the dollar.

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