UK and Europe
Financial and energy shares led a resurgence across European stock markets on Friday after the International Energy Agency called a bottom in the oil price and banks jumped on the back of the ECB’s new targeted loan programs.
Broader markets may have thrown a hissy fit at the idea of no more interest rate cuts but bank stocks which have been selling off heavily because of the potentially negative impact of negative rates on profitability could stand to benefit.
The Stoxx 600 European bank index charged higher with peripheral banks, typically those with the highest number of bad loans on their books, the biggest risers. The banks who have found making loans most difficult since the financial crisis will naturally be the ones who could benefit the most from cheap (even paid) credit from the ECB.
A rise in the value of the Chinese yuan to its highest this year has put concerns of currency devaluation on the backburner, adding another leg of support to the rise in stock markets. A rebound in the oil price after the IEA called for a possible bottom has helped broader stock market sentiment.
The bounce in markets marks a recovery from a sharp dose of central bank-induced volatility. As the dust has settled, markets are seeing the new package of economic stimulus measures from the European Central Bank in a more positive light. As we move further out from the ECB meeting, stocks could disentangle themselves from the rise in the euro.
Banks and Insurers were topping the FTSE 100 with Aviva (LON:AV), St James' Place (LON:SJP), RBS (LON:RBS) and Standard Chartered (LON:STAN) amongst the top risers. UK banks jumped but underperformed those on the mainland which are set to benefit from new TLTROs and the reduced prospects of even more negative interest rates. Aviva has extended gains after yesterday’s positive full year results. The insurance sector is in focus ahead of any possible pension reforms from Chancellor George Osborne in next week’s budget.
Shares of Old Mutual (LON:OML) were one of the very few fallers after announcing a new dividend policy that will likely see lower payouts, while confirming it would split the business into four parts.
US
US markets opened higher on Friday, continuing the rebound off yesterday’s lows with the S&P 500 jumping back above 2000 while the Dow smashed well through 17,000. A rise in the price of oil and the Chinese yuan have removed some the major concerns that beset markets at the beginning of the year.
FX
The US dollar was mixed on Friday; with commodity currencies gaining ground led by the Australian dollar while the euro gave back some of its post-ECB gains and the British pound clawed back some more of its Brexit-induced losses.
Having seen a 4c range against the dollar on Thursday, the euro gave back some ground on Friday but remains well up over the last two days. The jump in the euro reflects short covering from unjustifiably bearish sentiment rather than disappointment over the level of stimulus. The rising belief that the Federal Reserve will hold off on many more rate hikes this year means downside in the euro is limited, even with the ECB enacting more aggressive easing. The euro is lower on Friday as markets calm down post-ECB but remains well up over two days.
The Australian dollar had another barnstormer of a day, gaining 1.5% to its highest against the US dollar since July, having gained 8 of the past 10 days. The RBA is the only major central bank in the region holding back from cutting interest rates after the RBNZ followed the path of China and Japan this week. A rise in the value of the yuan and commodity prices are a positive for Australian exports to China.
The British pound remained unchanged after the UK trade deficit grew to -10.3B in February as expected.
Commodities
Oil prices rose thanks to Bullish sentiment from the International energy agency which suggested a bottom could be in for oil. The IEA did caveat its call for a possible bottom saying that the worst may still not necessarily over. The agency said oil demand remained constant and suggested falling high-cost supply and supply outages in Iraq have supported higher prices.
The price of gold has turned lower after reaching a new one-year high overnight above $1280 per oz in the wake of yesterday’s sell-off in equities. Gold’s strength represents scepticism that the ECB and other centrals including the US Fed have the tools to combat slowing global growth.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.