Europe
European markets are experiencing what can only be described as a post-tax reform hangover today. As with all hangovers, investors should really have seen this one coming.
It was never particularly likely that the Trump administration was going to be able to deliver on the expectations of the market and so it has been proved, though the effect on the US dollar hasn’t been particularly marked.
Weakness in oil and commodity prices has weighed on the FTSE 100, while European markets shrugged off a European Central Bank that was less than effusive about the recovery in the euro area.
In some ways this shouldn’t have been too much of a surprise, given that the final vote in the French election still has to take place. Nonetheless the recovery in economic activity seen since the beginning of this year has made it much more difficult for the ECB to be too downbeat about the strength of recent economic data. Mr Draghi’s get out of jail free card was, as expected: the weak inflation outlook, particularly core prices which are still below 1%.
This may well change tomorrow, but for now prices remain the main factor underpinning policy decisions for not only the ECB, but the Bank of Japan as well, who also kept their inflation outlook downbeat earlier today.
It’s been another decent day for those companies updating the market with Lloyds Banking Group (LON:LLOY) outperforming after reporting Q1 profit that beat expectations, and almost doubling its profits from a year ago. Legacy issues remain a drag as the bank set aside another £450m in respect of PPI mis-selling and compensation towards those customers who were victims of the HBOS fraud scandal. This looks set to replace PPI as the next banana skin for Lloyds Bank management, and while the independent review being announced could well help draw a line under this scandal there is potential for further sums to be set aside in respect of these cases. These are likely to be small change compared to the £17bn already paid out as a result of PPI.
Also doing well, health care provider Mediclinic (LON:MDCM) is near the top of the FTSE 100 on reports of a change by the Abu Dhabi regulator with respect to a third party medical insurance card.
The housing sector also showed it was in decent health as house builder Persimmon (LON:PSN) announced that forward sales had jumped to £2.6bn from £2.3bn a year ago.
US
US markets opened higher despite some disappointing economic data. Weekly jobless claims rose to 257k from 243k, while durable goods for March slid 0.2% missing expectations of a rise of 0.4%.
Once again company results have been the primary driver with Ford (NYSE:F) beating expectations on its Q1 numbers on both revenues and profits. Clothing apparel maker Under Armour (NYSE:UAA) also enjoyed a boost despite reporting a loss of $0.1c a share, but this was better than the consensus which was far bigger.
United Continental (NYSE:UAL) is also hoping to draw a line under its recent bad publicity by revamping its guidelines on how to deal with overbooked flights, and offering up to $10k to customers who volunteer to give up their seats on overbooked flights.
Expectations are also highs with respect to a number of earnings reports after the bell tonight as Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) update the market.
FX
The pound continues to exert pressure on the upside after CBI retail sales for April showed the biggest increase in volumes in nearly two years, confounding expectations of a consumer slowdown, and moving above 1.2900 and its highest level since last October.
The euro underwent a choppy session after the European Central Bank was more upbeat on its economic outlook, but remained cautious about inflationary factors, and if anything came across as more dovish than hawkish, probably quite deliberately given the timings of the French presidential vote.
The worst performer has been the Swedish krona after the Riksbank extended its bond buying program as well as pushing back its expectations for a rate rise.
The Japanese yen has also come under pressure after the Bank of Japan revised its inflation outlook lower, while revising up its growth outlook.
Commodities
For all today’s positive jawboning from OPEC secretary general Barkindo’s optimism that the overhang in global inventories was on the decline, it's increasingly clear that markets aren’t quite ready to buy into this narrative quite yet, as crude oil prices once again came under pressure.
A drop through the 200 day MA has seen some technical selling kick in with the lows of the year once again coming under pressure.
Gold prices are currently struggling to trade away from two week lows, despite some disappointment from the lack of clarity on Trump tax plans and some equity market weakness.
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