Europe
It’s been another day of records for the FTSE100 and the German DAX, as they both put in new record highs, however the glacially slow progress above these new highs is a little worrying, which might suggest some investor nervousness at embarking on aggressive buying at such elevated levels.
The best performers have been in the basic resource sector which has been enjoying a bit of a technical rebound after heavy declines in the past few weeks. Last week Rio Tinto (LON:RIO) hit its lowest levels this year as did BHP Billiton (LON:BLT), so while today’s news about a big Chinese investment plan is welcome, the benefits of it are unlikely to be immediately apparent in the short term.
While there is a case for speculating that part of the rebound is down to the announcement of the new $900bn Chinese Silk Road investment plan, which it is hoped will deliver improved trade and infrastructure links to the rest of Asia, Europe and Africa, over the course of the next few years, it’s unlikely to be enough to suggest a sustained rally.
Today’s rebound also needs to be set against a backdrop of some weakness in the Chinese economy and concern about highly elevated domestic debt levels, after this morning’s weaker than expected industrial production and retail sales data.
Oil prices have also taken another leg higher after weekend comments from Russia and Saudi Arabia about the need to extend the output freeze into next year.
Antivirus software provider Sophos is enjoying a decent bump in the wake of the weekend cyberattacks, moving to record highs and the best performer on the FTSE 250, by quite some distance.
The best performers have been Glencore (LON:GLEN), Anglo American (LON:AAL) and Antofagasta (LON:ANTO), while on the downside Tui AG NA (LON:TUIT) Travel has come under pressure after revealing bigger than expected first half losses of £177m, which has prompted some profit taking after the shares hit two month highs at the end of last week.
US
The rally in oil prices has seen US markets open higher today with the S&P500 looking to close in on a new record high, despite ongoing political concerns about events in Washington, and a slowdown in the US retail sector, which prompted last week’s losses.
The latest Empire manufacturing survey for May showed a sharp slowdown from 5.2 in April to -1, reinforcing concerns about a softening in the US economy despite continued optimism that the slowdown in Q1 is merely transitory.
In company news cybersecurity stocks are doing well in the wake of the weekend cyberattacks, with Symantec leading the way.
FX
The commodity currencies have been the main beneficiaries of today’s rebound in oil and commodity prices, though the weakness in the US dollar has also played a part. The weak US dollar has also played a part in the rally of the Australian and Canadian dollar which have both hit 7 day highs as copper, gold and oil prices all post decent gains on the day.
The euro continues to benefit from the weaker US dollar but also from a more benign political environment as new French President Emmanuel Macron announces his new Prime Minister Edouard Philippe, who is on the centre right of French politics, and unlikely to be a popular choice with the French unions.
Commodities
Oil prices have taken another leg higher after Saudi Arabia and Russia agreed on the need to extend OPEC output caps into March 2018 in an effort to help underpin prices and rebalance the oil market. While markets have reacted as you would expect, a higher oil price will only serve to make it easier for US producers to increase their shale output, and fill the gaps left by OPEC non production, thus potentially limiting significant further upside.
While the announcement of this extension may seem significant, Russia’s record in meeting quota caps has been patchy at best, given that they only recently met their quota requirement four months after they were supposed to. Knowing this, while today’s reaction is undoubtedly helping to squeeze short positions the pledge to do “whatever it takes” while having echoes of the ECB’s Mario Draghi is probably just an exercise in window dressing given the likelihood that most members may well break ranks if they start to lose market share.
Gold prices have reaped the benefit of a weaker US dollar, as well as a disappointing Empire manufacturing survey, which hit a seven month low.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.