UK and Europe
European markets firmed on Tuesday boosted by a rise in financial shares, a drop in the euro and oil prices rising for the first time in three days.
Investors in the banking sector have seemingly taken heart from the suggestion from UBS Chairman Axel Weber that trading activity will pick up after the Brexit vote. Flows out of the much-hated financial sector have abated since the Fed realigned expectations of a US rate hike this summer.
Banking and insurance shares in UK stock markets got an extra boost in a read-across from Nationwide building society reporting a rise in full-year profits.
Tesco (LON:TSCO) was top riser on the FTSE 100, gaining over 6%. Kingfisher (LON:KGF) shares flew higher after results showed sales increased in the three-months through April thanks to growth from its Screwfix trade outlet. Imperial Brands (LON:IMB) saw gains of as much as 3%, brushing off Axa's (LON:0HAR) divestment of its tobacco share holdings.
US
US stocks opened around 1% stronger with the financial sector leading gains closely followed by tech as data showed new home sales rise to the highest level since 2008.
Facebook (NASDAQ:FB) shares responded well to the social network making changes to some procedures related to its “Trending topics” section in response to criticism that it filters conservative news stories. The public perception that stories on Facebook were purely a function of neutral algorithms has been tainted. These changes should be enough to make sure the result isn’t users turning to other sources for news.
Investors and users didn’t respond too favourably to news Twitter (NYSE:TWTR) would no longer count media like photos, videos and links as part of its 140 character limit, with shares dipping 4%.
Shares of Best Buy (NYSE:BBY) opened 6% lower after the electronics retailer beat profit and revenue forecasts but guided below estimates for the second quarter and announced the departure of its CEO.
FX
The British pound was the notable exception to a day of broad dollar strength as markets continue to focus on the hawkish shift from the Federal Reserve. Philadelphia Fed President Harker joined calls for 2-3 rate hikes this year and dismissed Brexit as a reason to derail a possible June rate hike.
Sterling saw a big move higher during the appearance of Bank of England governor Mark Carney at Brexit-focused inflation hearings, whilst another poll showed rising public support for Britain remaining in the EU. Governor Carney did not really saying anything new on the inflation outlook but withstood a hard line of questioning from MP Rees-Mogg as to the central bank’s neutrality on Brexit.
Mr Carney made another bold case outlining the risks of a possible Brexit, which acted as a boost to the Remain camp and supported the British pound. Should the UK remain in the European Union and the Federal Reserve raise rates this summer, it’s conceivable that the Bank of England won’t be that far away. Without Brexit risk, GBP/USD at 1.45 would appear to under-price the relative performances of the UK and US economies.
The euro fell after data showed a surprise drop in investor sentiment to 6.4 versus estimates of 12.
The Australian dollar was the biggest FX faller after RBA governor glen Stevens defended the central bank’s 2-3% inflation target, implying another possible rate cut in order to achieve it.
Commodities
The price of crude oil snapped a two-day slump on Tuesday ahead of an expected draw in US weekly inventories from API data despite Iraq announcing its exports grew to a new record. Brent crude’s struggle to make headway above $50 per barrel could come to an end next week once the uncertainty is removed from the semi-annual OPEC meeting on June 2. The cartel is unlikely to find consensus on freezing production with Saudi Arabia unwilling to commit unless Iran and non-OPEC countries like Russia are on board.
A rising belief that the Fed could lift rates at June or July meetings saw gold retreat to beneath $1240 per oz, its lowest in over three weeks. The path of least resistance for gold at the moment is lower, but that could change following US GDP data and Fed Chair Janet Yellen’s testimony on Friday.
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