After a slow start European markets have regained some of their equilibrium today, as oil prices stabilised after rebounding off a four week low.
The decline in oil prices over the last few days appears to have been largely shrugged off by equity markets, probably due to the fact that the recent push higher in the US dollar appears to have run its course, against pared back expectations of future US rate rises.
We’ve also seen an improvement in the unemployment picture in Europe for February as EU unemployment fell to 10.3% from 10.4% in January, its lowest level since 2011. Spanish unemployment also fell by 58k in March, raising expectations that, despite recent weaknesses in some of the more recent data that the broader economy in Europe would continue to improve.
The mining sector has had a broadly positive session after Anglo American (LON:AAL) and Glencore (LON:GLEN) sold off some underperforming assets. Anglo sold off an Australian coal mine, while Glencore sold off its stake in a Kazak gold mine for $100m. Both stocks have been among the better performers on the FTSE100 this year after a disastrous couple of years as they look to streamline their operations and bolster their balance sheets.
US
US markets opened slightly lower today pulling back a touch from the four month highs seen at the end of last week, as investors absorbed the prospect of an improving economy and a less hawkish Federal Reserve, in the coming weeks and months.
Friday’s payrolls numbers came in at just the ideal level, not strong enough to prompt concerns about an imminent policy tightening, and not bad enough to raise concerns about the US economy.
While Friday’s payrolls number painted a positive picture of the US labour market the Labour Market Conditions index would appear to paint a slightly weaker outlook. This uses a weighted average of 19 different monthly indicators and in February it declined quite sharply by 2.4, from -1.9 in January. The March numbers also showed a decline, albeit with a slight improvement to -2.1, though a gain of 1.5 was expected. The index has declined for three straight months its worst run of declines since mid-2009. This weakness may help explain the recent change in tone from Janet Yellen with respect the rate rise cycle.
The latest revisions to durable goods saw a downward revision to the February numbers excluding transports to -1.3% from -1% while factory orders dropped 1.7% in February.
On the data front today the New York ISM dropped sharply in March to 50.4 from 53.6, with the employment component dropping to 40.9.
Stocks in focus include Tesla Motors (NASDAQ:TSLA) after it was announced that the new Model 3 has seen reservations rise to over 250,000 for the new lower price car, announced last week.
The airline sector is in focus after Virgin America (NASDAQ:VA) announced that it was being bought by Alaska Air (NYSE:ALK) for $57 a share, or $4bn including debt.
FX
The US dollar has had a somewhat mixed session today pushing higher against the commodity currencies, with the Australian dollar giving up ground ahead of tomorrow’s RBA rate decision. Since the beginning of the year the Australian dollar has risen over 8% against the greenback and with retail sales flagging along with inflation expectations, there could be a risk that the Australian central bank, even if they don’t cut rates, give the impression they might be inclined to do so.
The pound, after slipping in early trade has rallied strongly, despite the cost of insuring against a lower pound rising above levels last seen at the height of the financial crisis in 2008, which would suggest the risks are overdone. On the data front the latest construction PMI data for March matched a 10 month low of 54.1, with housebuilding activity, showing some worrying weakness.
The euro has also slid back against the pound after the latest February factory gate price data showed a steeper decline than expected while the ECB’s chief economist Peter Praet raised the prospect of further ECB action in the event that the central bank sees the risk of falling further behind the deflation curve.
Commodities
After a sticky start oil prices have stabilised from four week lows, despite concerns about the ability of OPEC and non OPEC members to arrive at a deal of any consequence in Doha later this month. It has become clear that Saudi Arabia is already preparing the ground for a prolonged period of lower for longer prices in the wake of its recent announcement of a 5% stake in Aramco along with a massive tax and subsidy overhaul of its economy.
The modest improvement seen in the most recent US data has continued to act as a drag on gold prices as they trade just above five week lows.
Agricultural commodities, corn and wheat have also slipped back today with corn flirting with multi-month lows after the latest USDA report showed that corn planting was set to rise by 6.4% this year.
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