Europe
There wasn’t too much in the way of action in European shares on Thursday after mixed service and manufacturing data suggested Europe’s economic expansion was coming off the boil in May.
There was a bigger than expected slowdown in Germany’s service and manufacturing sectors according to purchasing managers but one the bright spot was French manufacturing which contracted at a slower pace than forecasted.
The slowdown comes at a time when the euro has gained over 9% in the five weeks. Although the euro at current levels is advantageous to Europe’s exporters, it’s not quite so apparent as when the currency was close to parity with the US dollar.
If the euro does stabilise, perhaps as a reflection of a weaker economic picture in the United States and Europe’s economy has already peaked, it shows the fallacy of pinning an economic recovery around a weak currency.
European banking shares stalled after strong gains yesterday following the announcement of billions in fines for FX market rigging. The concern going forward is that there may be some civil lawsuits to follow and that because Barclays (LONDON:BARC), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and the Royal Bank of Scotland (LONDON:RBS) all pleaded guilty to US Justice Department charges; the penalties could be much harsher on any future prosecutions.
Much stronger than expected retail sales in the UK for April sent the pound roaring higher but didn’t do much to bolster a lacklustre FTSE 100 that has been languishing around the 7000 mark all week.
Royal Mail (LONDON:RMG) shares look like ending where they started the day after initially dropping 1% as investors buy-in on the higher dividend, despite the less than impressive parcel volumes seen last year and forecasted for this year.
US
US stocks were tip-toing around record highs on Thursday following disappointing economic data and a fairly uninspiring set of Federal Reserve minutes which added little to the debate on the timing of a Fed rate hike.
Jobless claims rose to 274K last week from 264K the week before and above the 270K economists had forecasted. The massive leap in housing starts had raised hopes of a nascent housing recovery but an unexpected decline in existing home sales put a dampener on the prospect on Thursday.
Shares in HP were higher after the PC-maker sold its stake in a Chinese server unit for $2.3bn before its earnings are reported after the close.
FX
The Dollar was slightly lower on Thursday following a three-day rally after weaker than expected housing and employment data.
The British pound got a boost from UK retail sales that were much higher than expected with clothing sales particularly strong, up over 8% compared with April last year. The UK consumer is seemingly taking advantage of the wealth-effect of higher average wages and “good deflation” from lower petrol, energy and food bills.
It’s interesting that there appears to have been no sign of “election fears” detracting from people’s confidence in the British economy. The demonstrated confidence in the UK’s economy goes a long way to explain the incumbent Conservative Party victory in the general election.
Commodities
Crude oil prices leapt higher by as much as 3% on Thursday supported by a weaker dollar and US inventories day that saw another weekly decline.
Whether crude prices can make new highs for the year in the next few days may largely rest on the pace of the decline in US oil rigs. More signs that US oil explorers are putting off halting production while prices are high may in itself have the effect of lowering prices.
After the sharp declines on Tuesday, gold and silver were sluggish on Thursday despite the weakness of the US dollar.
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