Europe.
After a weak start European markets have recovered their poise after coming under pressure in early trading as investors and traders strove to prevent a third successive week of losses.
Initially investors struggled to find solace in better than expected German Q1 GDP growth which managed to offset the effects of this past week’s disappointing industrial production numbers. While EU Q1 GDP was revised lower to 0.5%, not unexpected given recent weaker economic data, equity markets started to pull off their lows ahead of a raft of US economic reports and finally clambered into positive territory after US retail sales for April beat expectations.
A rise in German domestic demand appears to have been the primary driver behind the rebound in Q1 GDP, as low energy prices have trickled down into higher disposable incomes. The wider concern is if the recent rebound in oil prices starts to see this effect dissipate in Q2 as consumers succumb to income pinch, as energy prices rise again.
Markets have shrugged off dire warnings from Christine Lagarde at the IMF about the possible impact on share and asset prices in the event of a “leave” vote next month, saying that the consequences would be either bad, or very, very bad. The tone was so apocalyptic one almost expected to see Private Frazer from Dad’s Army, striding in and claiming that “we’re all doomed”.
In a highly political move the fund also said it would delay the release of its findings until the week before the referendum vote.
Amongst the better performers Tesco (LON:TSCO) shares have had a decent day after publishing its annual report. Banks have also had a decent day as they also strive to reverse a succession of weekly losses.
Coca Cola HB (LON:CCH) shares have slid back after the company saw sales revenues for Q1 slide 2.7%, with some speculation that the recent announcement of a sugar tax in the recent UK budget may have harmed sentiment towards the soft drink sector.
ITV (LON:ITV) has also continued to struggle after its disappointing update yesterday, after it blamed “Brexit” uncertainty for a slowdown in advertising revenues. Let’s hope “Brexit” doesn’t become the new excuse of choice to replace the weather for reasons for reasons for missing your targets.
US
US markets initially opened lower taking their cues from the weak start in Europe and weighed down by the slightly hawkish comments from two senior Fed policymakers last night. While the US dollar has rallied, bond markets continue to remain sceptical that the Fed will act given the recent bleak outlook being outlined by US retailers, and the softness of recent economic data.
After a weak start to 2016 US retail sales for April came in much better than expected rising 1.3% in April, well above expectations of 0.8%. This is all the more surprising given the weak outlook outlined by major US retailers in the last few days, begging the question as to where US consumers are spending their money if it’s not being reflected in US retailer’s quarterly numbers.
The disconnect is no better illustrated in the numbers reported this week from such luminaries as Wal-Mart (NYSE:WMT), JC Penney Company Inc Holding (NYSE:JCP), Macy’s Inc (NYSE:M), Kohl’s Corporation (NYSE:KSS), Nordstrom Inc (NYSE:JWN) and Dillards Inc (NYSE:DDS) all reporting weak numbers and warning about the outlook.
Looking a little more closely, it would appear that while traditional retailers are getting crushed; on line stores appear to be doing OK, while auto makers saw good sales growth.
Apple shares (NASDAQ:AAPL) have crumbled below their 200 week MA for the first time since 2009 and their lowest levels in two years as investors fret that the company has run out of ideas against a backdrop of slowing iPhone sales.
The slide in the share price has been driven by reduced component orders from its suppliers fuelling a concern that the company and global demand has reached peak iPhone. The company hasn’t been helped by its reluctance to break out its sales numbers for its Watch product, perpetuating the belief that the product has been a flop, as well as a perception that the company has hit a wall in terms of innovation.
While the recent decision to invest $1bn in Chinese ride hailing service Didi is an attempt to try and cement its foothold in China, after the company fell out with Chinese regulators last month over its book and film services, it rather gives the impression that the company doesn’t have a clear idea of where to put the huge amounts of cash that it has available in order to find its next “killer” product.
FX
The US dollar has risen strongly this morning after warnings from the Federal Reserve’s Esther George and the Boston Fed’s Eric Rosengren that the Federal Reserve needs to consider a rise in interest rates. While the comments from George aren’t too much of a surprise given that she is widely considered a policy “hawk” the comments from the Boston Fed chief are given he is perceived widely to be a policy “dove”
This US dollar rebound gained traction in the wake of this afternoon’s April retail sales numbers which blew away expectations, coming in at 1.3%, the biggest rise in a year, in the process raising more questions than answers.
The commodity currencies were the worst performers as commodity prices slipped back on the back of the firmer greenback with the Australian dollar and Norwegian krone the worst performers.
While Friday’s US data points to an increased possibility that the Fed might be more likely to raise rates next month, the likelihood of it happening still remains pretty remote.
Commodities
Oil prices have slipped back from their highest levels this year on the back of a rebound in the US dollar, while concerns about the supply glut extending into 2017 have also caused some profit taking. Russia’s oil minister warned that the market may not balance out until the middle of next year. The latest OPEC report also showed that the market surplus from 2016 is likely to increase to 950,000 barrels per day, a significant increase from its forecast a month ago.
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