Europe
It’s been another one of those days for European markets with underperformance on the part of the German DAX and FTSEMib, while UK equities continue to remain fairly resilient.
We’ve seen another record high for the FTSE250 while the FTSE100 briefly pushed back above the 7,300 level as the pound slipped below $1.2400.
The best performing sector has been banks and financials which are leading the gainers on the back of yesterday’s hawkish interpretation of Fed Chief Janet Yellen’s comments to the Senate Banking Committee on the timing of a potential Fed rate rise, as Royal Bank of Scotland (LON:RBS), Barclays (LON:BARC) and Lloyds Banking Group (LON:LLOY) hit their highest levels since the June Brexit vote.
Also doing well international equipment rental company Ashtead (LON:AHT) is higher after being on the receiving end of a broker upgrade, as investors price in the effects of a potential US corporate tax cut on its profits.
TUI Travel after seeing its shares rise sharply yesterday, did its best impression of the Grand Old Duke of York, with its shares tumbling back down the hill again after it lost a compensation court case in Germany which involved the cancellation of a number of flights after alleged wildcat strike action by some of its workers.
Retail stocks Next and Marks and Spencer (LON:MKS) are also lower, possibly a result of this morning’s weaker than expected wage growth data, raising the prospect that consumers may well be less inclined to spend any excess cash.
US
US markets opened fairly flat despite some really positive economic data for January saw inflation rise sharply in January to 2.5%, its highest level since March 2012, while retail sales for December and January also rose above expectations.
As a result bond yields on US treasuries edged back towards one week highs, while 2 year yields hit their highest levels this year at 1.2629%.
Financials remain in focus as speculation about higher rates provides a tailwind, with JP Morgan trading at record highs, along with Goldman Sachs (NYSE:GS), which is just shy of its record high.
On the earnings front Pepsico (NYSE:PEP) saw its Q4 numbers come in above expectations at $1.20c a share. The numbers were helped by a rise in the consumption of lower calories drinks and snacks which now account for 45% of the company’s revenue.
Apple shares (NASDAQ:AAPL) have continued their path to record levels in anticipation of tax reform with some shareholders anticipating that the extra cash could well find its way back in the form of extra dividends.
FX
A big jump in US CPI and retail sales in January gave extra fuel to yesterday’s US dollar rebound after both came in much better than expected. US CPI rose 2.5% and retail sales rose 0.4%, while the December numbers were also revised higher to 1% from 0.6%. While this has given added impetus to the prospect of a US rate rise as soon as next month, it is interesting to note that real average weekly earnings declined 0.6% and were flat year on year. The arguments for a rise in rates are certainly becoming much more difficult to ignore, but as in the UK wages are struggling to keep up.
This perhaps explains why the pound has come under pressure again today, despite wages rising 2.6%, this was less than markets had been expecting, and gives much more latitude to the Bank of England to simply sit on their hands, despite a continued robust labour market, where total employment continues to rise to new record levels.
Commodities
Today’s decent US data has seen gold hit one week lows, before pulling back as the odds of a rise in the Fed Funds rate in March increased to 40%.
Crude oil prices have trod water today but continue to struggle at the top end of their recent ranges corralled between the effect of OPEC cuts and increasing US shale production. US inventories once again came in well above expectations at 9.53m barrels, for the second week in succession.
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