Markets subdued by forex probe, BOE inflation report

Wednesday, November 12, 2014

A cautious session for global equity markets today with European stock indices dipping lower as the news of five major banks being fined $3.4bn in a longstanding forex probe saw appetite for risk reduce. Regulators on both sides of the Atlantic in the US and UK as well as Switzerland hit UBS, RBS, Citi, HSBC and JPMorgan Chase with the fines citing allegations of widespread rate-rigging and a lack of necessary controls to prevent manipulation. The news saw the UK benchmark index sink lower from the outset as it remained under pressure throughout the entire session, snapping a five session bull run. Both the CAC and DAX also experienced selling pressure throughout the day as investors added this latest penalty to the long list of fines handed out to major financial institutions.

Market optimism was dealt a further blow after the Bank of England inflation report confirmed what many market participants had already been thinking by forecasting that interest rates would need to stay at historic lows until next autumn to prevent inflation remaining below its 2% target. The report went further to outline stable economic growth and weaker inflation for the months to come while stressing there was no appetite for tighter monetary policy in the near term. UK unemployment data released earlier today saw the ILO unemployment rate stabilise at 6.0% in September with weekly earnings up 1.3% against expectations of 1.1% in September, outstripping inflation of 1.2% for the first time since 2009.

The positive data helped buoy sterling to 1.5941 against the pound early on before selling pressure gave way towards the afternoon towards 1.5812 as investors exercised caution after the release of the Bank of England’s inflation report. Policymakers expect the short term inflation outlook to fall temporarily below 1% before rising gradually higher to 2% by the end of 2017.

In a sign that the general mood was becoming more risk averse spot gold prices built on yesterday’s close, testing levels towards $1,170/oz as investor demand for the yellow metal improved slightly. After hitting a fresh year-to-date low towards $1,132/oz on Friday last week, prices have rebounded 2.8%, with both physical buyers and investors prompted by the buying opportunity. The yellow metal still has a long way to go before it recovers the year-to-date losses however, and even longer still to regain ground towards its year-to-date high at $1,392.33/oz. 

UK unemployment holds steady at 6.0%

UKUEILOR Index UK Unemployment 2014 11 12 13 30 01

Gold prices build on yesterday's gains, holding around the open 

XAU Curncy Gold Spot Oz D 2014 11 12 16 16 30

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