Europe
No Ides of March this year, despite European stocks ending the week, month and the quarter with a whimper, but nonetheless we’ve still seen a fairly positive start to the year despite concerns at the outset of political instability in Europe, the health of the banking system, and the first faltering steps of a Trump Presidency, not to mention this week’s triggering of Article 50 by the UK.
Friday morning we heard the framework of the EU response to the UK letter and while it came across as uncompromising there was enough in it to suggest some degree of wiggle room once negotiations get under way.
In the past year we’ve seen the FTSE100 put in four consecutive positive quarters, while European stocks have put in three on the spin as well, with the DAX in touching distance of its record highs of April 2015.
We’ve no doubt been helped in these gains by a decent start to the year for the global economy, and this continued Friday with some decent manufacturing data from China which has rounded off a fairly decent Q1 for the Chinese economy.
It therefore makes it all the more surprising that the worst performing sector is the mining sector given the robustness of Friday’s Chinese numbers, with the biggest fallers being Anglo American (LON:AAL) and Antofagasta (LON:ANTO), probably as a result of further weakness in copper and iron ore prices.
Political unrest in South Africa has also played a part after President Zuma fired his finance minister Gordhan and a number of other cabinet ministers for alleged corruption. There has always been tension in this relationship and it is not the first time these two have fallen out, so further evidence of dysfunctional government has hit South African exposed companies hard with Old Mutual (LON:OML) being the hardest hit, while in the FTSE 250 Investec has also come under pressure.
US
US markets opened lower after the latest US PCE inflation data showed that while prices inched up in February, coming in at 1.8%, real personal spending slipped back by 0.1%, suggesting a lack of confidence amongst consumers, despite higher wages growth.
This reluctance to spend is a worry for an economy that is supposed to be growing at a decent rate, and it doesn’t chime with the rise that we’ve been seeing in consumer confidence, which is showing readings at 17 year highs.
On the companies front BlackBerry (NASDAQ:BBRY) announced profits for the quarter of $0.04c a share, above expectations, while revenue also surprised to the upside.
In the wake of EU approval of the DuPont/Dow Chemical merger, DuPont (NYSE:DD) is spinning off its crop protection business to FMC Corp (NYSE:FMC), while acquiring the health and nutrition side of the business of FMC.
FX
In a decline that has lasted six quarters, matching a similar sequence back in the early 1980’s, the pound looks to be on course to post its first positive quarter since Q2 2015 in spite of this week’s triggering of article 50 of the Lisbon treaty, which has set the clock ticking on the UK’s departure from the EU.
Friday’s UK Q4 GDP number came in unchanged at 0.7%, while the Q3 numbers were nudged lower bringing the annualised number down to 1.9%. A wider concern was the continued decline in the household savings rate as household borrowing hit a record high in Q4, casting further doubt on the wisdom of last year’s August rate cut by the Bank of England.
The euro continued to struggle after a steeper than expected drop in CPI inflation in March. The fall in headline CPI from 2% to 1.5% was much bigger than anticipated, while core prices also slid back to 0.7%, again a bigger fall than expected. This is unlikely to please the Germans who want the ECB to scale back the current stimulus plan more than the reduction to €60bn a month that we’ll be seeing from April. This sharp fall is likely to put on ice any prospect of further talk of a taper this side of the French elections at the very least.
The Canadian dollar had a good day after GDP for January jumped sharply by 0.6%, well above expectations of 0.3%, which in turn pushed the annualised number up to 2.3%.
Commodities
It’s not been a particularly good quarter for oil prices despite the agreed production quotas for OPEC, and it’s not hard to see why when you look at the rise in the US rig count since the beginning of this year. This has seen US rigs rise from 658 at the end of last year to 809 at the end of last week, an over 20% rise. This return of US shale, and record inventories has taken the edge off any expectation that oil producers will be able to engineer higher prices in the short term.
While stocks have had a decent quarter, it’s also been a decent three months for gold prices as investors mitigate some of their risk by increasing their gold holdings, with the yellow metal up over 7% on the quarter, beating the gains of the Dow and S&P500 over the same period.
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