Europe
It was a fairly subdued end on Friday to what had been a positive week for Europe’s markets with the German DAX solidly positive territory for the year to date, though the rest of Europe is lagging behind in that regard.
The FTSE100 remainde on course to gain a foothold back above the 7,000 level and on course to post gains of 10% so far this year, however when you deduct the 15% currency depreciation, things don’t look anywhere near as good.
The best performers on Friday were in health care while the inability of commodity prices to build on recent gains saw some profit taking in basic resource stocks, with the FTSE 350 Mining Index having a negative week, with declines for BHP Billiton (LON:BLT) and Antofagasta (LON:ANTO).
It was also a good week for oil and gas producers with that index hitting its highest levels this year on the back of further gains for oil prices this week, while the weakness of sterling in the last couple of days is also helping.
On the downside, Microfocus is the worst performer on the back of a downgrade from UBS, citing near term risks for cash flow in respect of its deal with Hewlett Packard Enterprise Co (NYSE:HPE), in terms of significant advisory fees.
US
The big question on most people’s lips at the moment is whether the Dow can manage to nibble away at the 20,000 level that it has been flirting with this week. Thus far it has fallen short and the opportunity to do on Friday has passed.
Even if we fall short we’ve still seen a decent week for US equities, trading as they continue to do at record levels. The big question is how a strong US dollar and a strong US equity market can co-exist at a time when all we have had at the moment is promises of fiscal action, and higher rates.
Since the 8th November the Dow has rallied 9%, the S&P500 over 6% and the Russell 2000 has gained over 14%, how much of market expectations of what President elect Trump can deliver are now priced in.
FX
On the currencies front, the US dollar is pausing for breath on some of its recent gains after hitting multi-year highs against a basket of currencies. A softening in bond yields is also helping in this regard with gains for the euro after it hit multi year lows against the greenback.
The Australian dollar was amongst the worst performers on Friday, slipping back on the back of slightly weaker commodity prices, as well as concerns that the recent softening in economic data could prompt the RBA to potentially loosen policy in the early part of 2017.
Commodities
Gold has managed to rebound from its lowest levels since February on the back of a slightly weaker US dollar, but it still remains on course for its sixth successive weekly loss, and on course to give back most of its gains year to date.
Oil prices hit their highest levels this year earlier this week, but there is a concern that the recent rally may be running out of steam. There still remains some doubt as to whether OPEC and non-OPEC members will be able to deliver on their recent agreement, particularly since recent oil data showed that production was still increasing at record levels.
Friday morning’s news that Kuwait is looking at cutting production is a positive, however with Libyan wells looking to restart production there are many moving parts to this particular story. The visit of Nigerian oil minister Barkindo to Washington in an attempt to get US shale producers on board with respect to an output cut doesn’t appear to be helping underpin prices in the short term.
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