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While you were sleeping: Euro rallies, Carillion collapses

Tuesday 16th January 2018

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The euro strengthened to a three-year high amid optimism about economic growth in the European Union, the currency’s rise weighing on the region’s equities, notably those of exporters. 

The euro rose as high as US$1.22965, the highest level since December 2014.

Indeed, hedge funds and other speculative investors have amassed the heaviest long positions on the euro ever, Bloomberg reported, citing the latest Commodity Futures Trading Commission data, amid bets on a September end to European Central Bank stimulus.

Meanwhile, economists in a Bloomberg survey upgraded their 2018 outlook for euro-zone  growth to 2.2 percent, close to the decade-high 2.4 percent pace estimated for last year. 

Euro-zone money markets now price in a 70 percent chance of a 10-basis-point interest rate increase by the European Central Bank by the end of the year, up from 50 percent a week before, according to Reuters.

On Monday US financial markets were closed for Martin Luther King Jr Day. Last Friday, Wall Street's three benchmark indexes each closed at record highs. Investors will eye the results from a slew of US companies this week including Goldman Sachs, Bank of America, Citigroup, Morgan Stanley, IBM and American Express to assess valuations. 

In Europe, the Stoxx 600 Index ended the day with a 0.2 percent decline from the previous close.

The collapse of Carillion, one of the UK government’s top contractors that employs about 43,000 people worldwide, weighed on sentiment. 

”People are looking at possible winners from this [but] in the short-term, it’s a pretty grim day for the UK construction sector,” James Tetley, deputy head of research at N+1 Singer, told Reuters. 

The UK’s FTSE 100 index fell 0.1 percent, France’s CAC40 Index moved 0.1 percent lower, while Germany’s DAX Index shed 0.3 percent. 

Commodities including oil and gold rose, supported by a decline in the US dollar.  

Bank of America Merrill Lynch on Monday upgraded its 2018 Brent price forecast to US$64 a barrel, up from US$56, forecasting a deficit of 430,000 barrels per day in oil production compared to demand this year, Reuters reported. 

To be sure, Citigroup, Societe Generale, and JMorgan Chase predict the coalition of oil producers may begin winding down their supply cuts from the middle of the year, before the agreement’s scheduled conclusion in December, according to Bloomberg. The producers are nearing their goal of clearing an inventory glut, and rising prices risk encouraging rival supply, Bloomberg reported. 

“There could be an agreement over the summer on ramping production back up,” Ed Morse, head of commodities research at Citigroup in New York, told Bloomberg. 


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