Europe
The euro tumbling back to its decade lows was not enough to support European shares which succumbed to a bout of profit taking on Friday. It has been another strong week of gains so when German Finance Minister Schauble couldn’t rule out a ‘Grexident’ investors closed out before the weekend.
With the ECB having completed its first week of bond buying, European shares have extended well beyond those seen in the US and UK. Since the beginning of January capital flows have been distinctly in favour of European over US shares. Europe has seen inflows of over $30bn but the US saw outflows of over $40bn. The German DAX should by the end of today have seen its ninth straight week of advances.
UK
UK stocks were led down by the utility shares on Friday under threat of further regulation while another drop in oil prices hurt the energy sector.
Utilities shares Centrica Plc (LONDON:CNA) and Scottish & Southern Energy Plc (LONDON:SSE) fell on threats from the Labour Party that it will introduce greater regulation and possible price caps to ensure cheaper energy costs in the UK if it wins the general election.
Energy stocks including BG Group (LONDON:BG) and Royal Dutch Shell (LONDON:RDSa) were lower alongside the price of crude oil.
Whitbread (LONDON:WTB) shares moved to new record highs on broker upgrades following the company’s guidance that earnings will be at the top end of estimates.
Wetherspoon(J.D.) (LONDON:JDW) dropped as much as 5% after the company announced it is upping the ante on its breakfast and coffee offering given the poor outlook for pubs.
US
Stocks in the US were weighed down again as the dollar renewed its advance to multi-year peaks against most major currencies potentially harming foreign earnings at major US multi-nationals in the process.
The dollar is gaining strength thanks to the widening divergence between US and international monetary policy. The ECB has now started quantitative easing while the US is perhaps a few months from hiking interest rates.
It’s far from a guarantee that the Fed will indeed remove the patience language from its statement on Wednesday. Even if it does, it was made clear that a rate hike will be at least two meetings away and the decision would be data-dependent so may not happen for months. Nonetheless, the market is taking the expected removal of the forward guidance as the next hurdle jumped before lift-off from the Fed.
Shares of Herbalife LTD (NYSE:HLF) rallied over 10% on reports prosecutors are investigating possible market manipulation by Hedge Fund manager Bill Ackman.
FX
The US Dollar found a bid again on Friday despite an unexpected drop in producer prices and fall in consumer sentiment. Traders aggressively bought dollars on the dip in line with the longer term uptrend ahead of the Fed meeting next week.
A surprise miss in construction output in the UK in February sent the British pound tumbling. GBP/USD dropped to just above 1.47 and almost 5-year lows while EUR/GBP held above 0.71.
Wholesale prices actually expanded in Germany during February but that wasn’t enough to hold up EUR/USD which sank back beneath 1.05.
USD/JPY again traded in the middle of 121 and 122, its multi-year peak as it has done for the past two days with meetings from the US and Japanese central banks on the dock next week.
Commodities
Crude oil extended its recent weakness with WTI leading the charge lower beneath $46 / bbl with Brent dropping beneath $57 leaving the spread still greater than $10. The International Energy Agency warned that the supply glut is still present and that the pause in oil prices may only be temporary. The oil stock build up in the US is so large that the IEA has warned there is a risk of running out of storage.
Oil companies are using the record oil stockpiles as an excuse to ask the Obama administration to lift the US oil export ban. Lifting the ban could bring the spread between the two oil contracts much closer as a greater supply would be made available to global buyers. Since more oil would be available to the open market rather than being stockpiled in the US, the average of the two contracts may also drop, perhaps to new multi-year lows.
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