Stocks
Markets have stepped back from the cliff edge. A brighter finish left European benchmarks only narrowly lower for the week. Fear-based trades sent markets to extreme levels in a short space of time, leaving them exposed to a violent snapback the other way.
Geopolitics played into the better sentiment after Russian president offered to meet his “European partners halfway” to restore broken relations. IMF chief Christine Lagarde imploring Britain to remain in the EU was largely overshadowed by mourning over the shocking death of MP Jo Cox.
The FTSE 100 recovered 6000 aided by a recovery in previously out-of-favour bank and homebuilders shares. The pickup in the UK’s benchmark index in the last day-and-a-half has been accompanied by lower volume, suggesting a lack of conviction.
The course-reversal across markets has seen everything that was doing badly, outperform. That means banks, particularly debt-laden peripheral European and Brexit-exposed UK banks were ruling the roost. Lloyds (LON:LLOY) shares jumped over 5% thanks to a Supreme Court victory that could save it £1bn. Homebuilders were also amongst top-risers. Previously top performers like gold-miner Randgold (LON:RRS) fell out of favour.
One of the triggers for the change in market sentiment appears to be the suspension of Brexit campaigns following tragic killing of MP Jo Cox. The suspension of campaigns just means Brexit can temporarily move to the side-lines.
The choppiness in markets in part reflects unwillingness from institutional block buyers to participate until after the referendum, leaving price moves purely at the mercy of day-traders. The flow of funds is palpable evidence of Brexit fear in the market. Figures from Bank of American Merrill Lynch show the biggest weekly outflows from UK equity funds on record.
A report from The Energy and Climate Change Committee suggesting National Grid (LON:NG) be broken up into an American-style operator system has seen shares shed 1%. Tesco (LON:TSCO) shares rose amid a rise in broader markets after announcing the sale of Dobbies garden centres.
US stocks were higher in early trade, following a day that saw the biggest daily gain after a loss of over 100 points for the Dow Jones Industrial Average since February.
Shares of Apple (NASDAQ:AAPL) were under pressure following reports that Beijing has halted the sale of the iPhone 6 and 6s in the city for patent infringement, though the reports have since been denied.
FX
The US dollar was lower across the board on Friday amid the suggestion from the Fed’s James Bullard, one of the supposed hawks on the committee, that only one rate hike is needed through 2018. It marks a big shift in the Mr Bullard’s previously optimistic outlook for growth and inflation in the US economy. Should other Fed officials start to match Bullard’s dovish tone, it would mark a departure from a series of public comments in May suggesting June and July were “live meetings.”
Gains in the British pound and euro matched the fall in the dollar index whilst underlying yen strength left it flat amid general dollar weakness.
Commodities
Weakness in the dollar paved the road for strength across the commodity complex with oil, gold, silver and copper prices all rising.
The price of gold made it back above $1290 after a vicious sell-off on Thursday that took it from $1315 back to $1280 per oz.
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