Energy Stocks Lead Global Indices Higher
Oil charging towards $80 the barrel boosting energy stocks and another twist in the trade war story drove the markets higher on Wednesday. European bourses are trading up over 1%, led by the Dax which attempts to recover some of the 2.8% loss so far this week.
The FTSE has rallied 1.1% across the session, with oil majors and mining stocks leading the charge as they trace commodity prices higher. A weaker pound has also supported the index whilst few pockets of weakness could be seen in banking stocks and house builders amid falling house prices.
Trump easing his stance on Chinese investment has been interpreted as a softening of position by the US President, boosting demand for riskier assets. Metal prices were on the rise as optimism increased that China, the worlds largest consumer of metals could escape another tough hand from Trump, even though hawk US trade adviser Robert Lighthizer vows to protect US interests.
Oil to $80?
Any doubts over how long this rally can last given the conflicting messages coming from the White House have been overshadowed by soaring oil prices.
Concerns over oil supply disruption in additional to a heavy draw down in oil inventories has seen Brent reach an intraday peak of $77.87, suddenly making $80 per barrel a very realistic target despite the OPEC agreed production increase last week. The likes of BP (LON:BP) and Shell (LON:RDSa) are boosting the FTSE, whilst the energy sector is lifting Wall Street for a second straight day.
The US pressing allies to cut Iranian oil imports to 0 by November would completely overshadow the recently agreed increase in oil production by the cartel. Just looking at the numbers, Iran is responsible for around 12% of OPEC’s total output so even a slight reduction in demand for its oil could have a big impact on prices. When you then through into the mix falling production in Venezuela and Libya even oil to $80 seems like an undershoot.
House builders lower as house prices at 5 years low
House builders featured heavily on the FTSE loser board, after house prices fell to a five year low according to Nationwide. Brexit uncertainties and lacklustre wage growth have dampened demand in the housing market causing house prices to grow at just 2% year on year, whilst London saw prices decline 1.9%.
House builders, such as Taylor Wimpey (LON:TW) and Berkeley Group (LON:BKGH) continue to experience challenging conditions with few signs of imminent change. For a turnaround in this sector we would need to see economic conditions picking up considerably and given the lack of clarity over Brexit still, any such turnaround for the sector looks unlikely.
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