Dollar and equity prices appear weaker
The FT's Michael Mackenzie on what to watch for in markets on Monday: the US dollar extends its losses, weaker earnings estimates for S&P 500 companies, and low volatility combined with high valuations contribute to a more cautious sentiment.
Here's what we're watching as a new trading week gets going in London. The dollar is extending losses and targeting its low for the year against major rivals. A lower dollar is boosting gold, but oil prices remain under pressure. In turn, equity prices are softer across Europe, with S&P 500 futures also indicating a weaker start beckons on Wall Street.
The weaker dollar represents the main fallout from last week's Federal Reserve meeting. After signalling a measured pace of rate tightenings this year, the Fed has successfully kept market volatility subdued. For how long is the big question. And there are some disconcerting signals for the current sweet spot we see being occupied by markets. Analysts' estimates for S&P 500 earnings are falling, in spite of US share prices just shy of record territory. Combine a very low level of implied volatility, as measured by VIX, with high valuations-- clearly, plenty of investor complacency out there. Moreover, a leading indicator for broader risk appetite, junk bonds, are seeing outflows, as investors reassess the risk/reward in that sector.
Produced by Alessia Giustiniano. Filmed by Nicola Stansfield.