Europe
Having sunk to the lowest levels since early March, European stocks caught a late bounce on Thursday to end off their lows ahead of the May Day holiday weekend. It is the first monthly fall in European stock markets this year, corresponding with the first monthly gain in the euro-dollar exchange rate since June.
The euro gave up early gains after much stronger than expected US weekly jobless claims pumped up the US dollar.
The exchange-rate benefit of the European Central bank’s quantitative easing program was the most accepted as really benefitting the European economy. As the euro has stabilised, investors have taken the opportunity to take some profits in European stocks after massive gains in the first quarter.
Even a royal baby on the way wasn’t enough to get UK investors excited on Thursday. Slowing US growth and a mixed bag of UK corporate earnings weighed on sentiment.
Having failed to hold above 7,100 early in the week, the FTSE 100 has now fallen back to 6,900 with Royal Bank of Scotland (LONDON:RBS) a big faller after the bank had to set aside another huge provision for its role in the FX market-rigging scandal.
Royal Mail (LONDON:RMG) was a top performer on relief that it will have one less potential competitor after that Dutch firm PostNL (AMS:PTNL) cancelled plans to expand its ‘Whistl’ delivery service in the UK.
Royal Dutch Shell (LONDON:RDSa) posted a massive -56% decline in profits but shares rallied since this was not nearly as bad as had been expected. Like fellow UK oil giant BP (LONDON:BP), Shell has offset some of the losses as a result of the fall in oil prices by better results in refining and trading divisions.
US
Shares in the US were down modestly at the open on Thursday, still hovering beneath all-time highs in the S&P 500 and Nasdaq.
There has been a lot of conflicting economic data released in the past two days, the interpretation of which can be difficult in the context of good data implying a stronger economy but also a sooner rate hike from the Fed.
US jobless claims dropped to 262k, the lowest level in 15 years and hint that the drop in employment during March may have been a one off with a return to form in April. With markets already shifting gear from GDP to non-farm payrolls next week, claims at the lowest in over a decade has jolted expectations.
Before the unemployment report next week, US markets don’t seem to have all the pieces of the puzzle put together to explain either another leg higher or a bigger correction.
Apple shares (NASDAQ:AAPL) traded down over 1% on Thursday after the company offered no comment to the story that the Apple Watch shortage was perhaps because of a defect. News that the company may feel material impacts from the EU tax probe is also weighing on confidence that Apple will be able to keep up the huge profit growth seen in the past two quarters.
FX
The US dollar was mostly stronger on Thursday, clawing back some of the extensive losses seen yesterday after the weaker than expected GDP report. Weekly jobless claims surprisingly dropped to a 15 year low which sent the dollar bid.
Currency markets are already starting to look through the first quarter’s weak growth data. The jobless claims hint that non-farm payrolls could be stronger than expected next week which would breathe some life back into the Q2 recovery story.
The euro erased early gains after the better US jobless data but held well above the 1.1050, the March peak that was broken yesterday.
The Russian ruble declined after the country’s central bank cut rates more than expected to 12.5%. USD/RUB jumped up 2% to 52. The exchange rate is now well below the crisis levels seen a few months ago, in part thanks to higher oil prices, and that has given the Russian central bank the confidence to act more decisively.
Having broken out of their trading range on Tuesday, the Australian dollar and New Zealand dollar collapsed back down in unison on Thursday. The Reserve Bank of New Zealand indicated it would cut rates if prices weakened and explicitly jawboned the Kiwi dollar lower.
Commodities
Gold and Silvergot crushed on Thursday, down over 2% and 4% respectively as the dollar regained its spark thanks to better data. The Fed certainly played its part in the demise of precious metals by not ruling out a rate hike in June or September despite the weaker GDP report.
Crude oil built on gains made after Wednesday’s inventory data to make new 2015 highs with a shake-up in the Saudi leadership not expected to impact OPEC policies.
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