UK and Europe
European markets rebounded on the last day of what has been a tumultuous week for markets. Most of the underlying issues remain unresolved but the dramatic re-pricing of risk that took place through Thursday could only be sustained for so long without a let-up.
The most beaten up sectors of energy, basic resources and financials led the recovery as oil prices came off their lows and European banks received some more positive news.
Well received-results from Germany’s Commerzbank (DE:CBKG) , Deutsche Bank (DE:DBKGn) doing a buyback of its own bonds and JP Morgan (L:JPMJ) chief Jamie Dimon buying $26m worth of his own company’s stock were enough to restore some confidence in battered bank shares.
The catalyst for the move higher in the energy sector has been jump in the price of oil overnight when rumours surfaced that OPEC was ready to discuss a production cut.
Rolls Royce (L:RR) was on a roll as one of the biggest risers on the FTSE 100 after slashing its dividend by a half in response to lower profits. The divi cut is a necessary evil for the long term health of the company. It is being seen by shareholders as more favourable than shares getting diluted even more with a rights issue.
US
US stocks opened higher on Friday in line with risk-on sentiment in Europe and supported by the rebound in the price of oil and better than expected retail sales data.
FX
The US dollar was universally higher across the G10 currency universe on Friday, with the exception of the Canadian dollar which saw some strength from a higher oil price. US retail sales in January beat expectations with a 0.2% m/m rise when a gain of of 0.1% was expected, though a large seasonal adjustment appears to have played its part in giving the numbers a rosier tint.
The Japanese yen stabilised at the end of what has been its biggest two-week rise since the Asian financial crisis of 1998. USD/JPY is sitting above 112. It would appear the reaction in the yen is a big “no thank you” to negative rates from the Bank of Japan. The question is how much more the BOJ can possibly do, having already consumed 40% of the Japanese bond market.
The euro traded lower after German GDP data that met expectations set up for what will likely be the first quarterly slowdown in annual growth since the second quarter of 2014. Weaker European growth will likely add to calls for further easing from the European Central Bank.
Commodities
After soaring the most since the 2008 financial crises to a one-year high, gold is seeing a pullback on profit taking. Yesterday’s move in gold was extreme and may have marked a short term blow-off top. Though sentiment appears to have materially shifted away from what was a consensus belief for a fall below $1000 per oz.
Oil prices pulled away from multi-year lows on production cut talk from OPEC. An output cut would almost certainly be a game-changer for short term oil prices. The reason it remains unlikely is that the resulting higher prices would encourage more shale oil production which could eventually add to the supply glut and bring prices back down.
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