Europe
Having failed to sustain early higher prices, European stocks erased all of Monday’s gains on Tuesday as a spike in the euro and European bond yields unnerved a stock market rally that has been built on both being lower.
UK gilts yields jumped as prices fell over 1% to new 2015 lows, while German bunds and US treasuries moved in sync in a broad-based bond sell-off.
The euro rebounded off 1.11 in US dollar terms, supported the European Union raising its growth outlook for the region and comparatively weak US trade data.
With inflation in Europe rising alongside the price of crude oil, as well as service and manufacturing picking up, there is an increasing threat that the European Central Bank will finish its quantitative easing program early.
UK markets played catch-up with the rest of Europe, having missed Monday’s rally because of the bank holiday. Early gains were given back after construction data fell to the lowest in 22 months suggesting election jitters have affected business investment.
Energy shares including Royal Dutch Shell (LONDON:RDSa) which gained over 2.5% were top-performers on the FTSE 100 as oil prices rallied to new 2015 highs. HSBC was one of the biggest fallers despite beating quarterly earnings estimates as regulatory uncertainty over FX rigging and a possible relocation hit sentiment.
US
An unexpected increase in the US trade deficit in March caused a wave of first quarter GDP downward revisions and generated further doubt over the sustainability of the US economic recovery. There was some respite from better than expected service sector data for May but volatility in treasury yields led to risk off trading.
Disney shares made new record highs on Tuesday after the company beat earnings estimates thanks to higher attendance at its US theme parks as well as an increase in merchandise sales from some of its popular brands including Frozen and Marvel. The company’s film business is looking at another strong year with the latest Marvel Avengers film seeing the 2ndbiggest opening weekend of all time and Star Wars released later this year.
FX
The US dollar fell across the board after the weaker than expected trade balance data.
The Australian dollar rallied despite the RBA cutting interest rates almost with the express purpose of devaluing the Aussie to offset difficulties in the country’s mining sector as the fall in iron ore prices.
Higher oil prices helped the Canadian dollar rise in US dollar terms despite disappointing trade data in Canada with the US equivalent even worse.
The British pound reversed early losses from weak construction PMI data after the disappointing US data overpowered it.
Commodities
News of a shutdown Libyan port because of protestors and shelling of a Saudi city from rebels in Yemen helped Brent crude oil rally while WTI lifted above 60 ahead of API stockpile data.
There appears to have been a short squeeze in gold with prices having made a false break beneath the April low on Fridaybefore ripping back towards $1200 per oz.
Copper made hit its highest level in 2015, tracking the breakout in oil prices after mining and trading company Glencore (LONDON:GLEN) reported a 9% drop in copper output.
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