UK and Europe
European shares rose on Friday after a senior European Central Bank policymaker hinted at another cut in Eurozone interest rates and said “helicopter money” was part of the bank’s policy toolbox.
ECB Executive board member Praet said a rate reduction remains part of the central bank’s armoury adding that many more things that can be done, including giving funds directly to the public, before monetary policy reaches its limits.
It was the concern that the ECB has reached its limit of effectiveness that roiled European shares and sparked a rally in the euro in the immediate aftermath of last week’s rate-setting meeting. The ECB is trying to put out the message that there’s more it can do to boost the European economy. While the Federal Reserve remains on hold, additional ECB easing will have a hard time being transmitted through a weaker euro.
European markets have been caught in the middle of mixed market themes. A sharp rise in the euro undermines the profitability of a very export-orientated economy but fresh 2016 highs for US stocks is improving investor sentiment.
European banks rebounded after taking a drubbing at the idea of lower rates for longer. Shares of embattled Deutsche Bank (DE:DBKGn) rose over 1% while Standard Chartered (LON:STAN) made a big leap higher towards the top of the FTSE 100.
Sports Direct (LON:SPD) was biggest riser ahead of its demotion to the FTSE 250 as founder Mike Ashley runs the risk of being in contempt of parliament.
US
Stocks rose on Wall Street in early trading as higher oil prices and a softer Federal Reserve continue to support a near-vertical rally from the February low, despite a fall in consumer confidence.
The Dow Jones Industrial Average is now in positive territory for the year after erasing the 10%+ decline that bottomed in January. The rally has caught a lot of investors unawares and the associated short-covering goes a long way to explain its steep ascent.
Another explanation may be that the biggest rallies take place in bear markets. There’s no way US stocks can seriously be described as in a bear market whilst the Dow Jones is less than 1000 points from its all-time high but sentiment was materially damaged at the start of 2016 and the market remains susceptible to another big sell-off.
The reasons for the turn-around in markets since bottoming in February are pretty much a mirror image of what sparked the sell-off; the Fed, the Chinese currency and oil prices. That these concerns have abated is a good thing for higher stock prices, but the justifications for a fresh rally are hard to find with declining corporate profitability and no more QE from the Fed.
Shares of Jpmorgan (LON:JGCI) were amongst top risers after the bank committed to buyback $1.88bn more of its own stock while Tiffany (NYSE:TIF) and Adobe Systems (NASDAQ:ADBE) are both higher after well-received earnings
FX
The US dollar saw a technical rebound on Friday after two days of heavy losses, looking through data showing a drop in consumer confidence. The University of Michigan consumer confidence survey fell to 90 in March, down from 91.7 in February and lower than expectations of a rise to 92.2.
The Russian ruble bucked the trend by strengthening versus the greenback after the Central Bank of Russia decided against cutting interest rates. The CBR cited inflation risks whilst also forecasting a pessimistic $40 per barrel oil price in 2018 as a reason to hold rates steady.
The euro declined against the dollar and the pound after producer prices declined more than expected. Eurozone PPI slipped -0.5% m/m in February, a bigger drop than the -0.2% expected but moderating slightly from the -0.7% fall in January.
The Canadian dollar rose against the dollar after better than expected retail sales data and another daily rise in the price of oil.
Commodities
The price of oil rose for a third day taking WTI crude further above $40 per barrel to the highest its been in 2016. The lowest stockpile of US inventories in five weeks and optimism that the scheduled producer meeting won’t be scuppered by Iran’s non-participation continues to drive bullish sentiment towards oil.
Gold slipped back for a second day as reduced need for a haven in risk-on trading trumped demand for non-yielding assets in a low-rates environment.
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