Europe
We’ve seen a mixed bag for European markets today after yesterday’s sell off with the FTSE 100 hitting its lowest levels since February, with weaker defensives and oil majors, acting as the main drag, while the FTSE 250 and markets in Europe have rebounded quite well.
Whatever the effects that a stronger pound might be having on the main UK blue chip benchmark it’s certainly not affecting the FTSE 250 which has managed to recover a good proportion of yesterday’s losses.
Banks have bounced back with Lloyds Banking Group PLC (LON:LLOY) rebounding from its lowest levels this year on reports that the UK government is likely to call time on its remaining stake within the bailed out bank, and in the process bring to a close a nearly nine year period of UK government ownership.
Royal Bank of Scotland Group PLC (LON:RBS) is also enjoying a decent rebound after the UK Chancellor Philip Hammond acknowledged what most of us in the market already knew, that the taxpayer was unlikely to get its money back on any share sale in the future, thus clearing the way for further share sales in the coming months and years.
Associated British Foods PLC (LON:ABF) initially made good gains, before slipping back from six month highs, after reporting better than expected numbers for the first half of the year. Surprisingly it wasn’t the Primark part of the business that provided the uplift but higher sugar prices that helped boost profits to £123m from £3m a year ago. Even so, the clothing side of the business also performed well, however the strength of the US dollar did hit its profit margins on the sales side. Overall the prognosis was positive and has helped the share price move to its highest levels since September last year.
Burberry Group PLC (LON:BRBY) shares have taken a nose dive for the second day in a row despite posting numbers that came in better than expected. While revenues rose 3%, the numbers for total sales showed a decline from £1.6bn to £1.4bn.
A modest rebound in copper and iron ore prices is helping support the mining sector after yesterday’s sell off, however gold miners Randgold Resources Ltd (LON:RRS) and Fresnillo PLC (LON:FRES) have underperformed on a slightly softer gold price.
US
US markets opened slightly higher after yesterday’s slide with the latest earnings announcement from Morgan Stanley (NYSE:MS) helping put a floor under the recent sell-off for financial stocks.
The bank’s numbers were boosted by a decent performance from its fixed income division, unlike Goldman Sachs Group Inc (NYSE:GS) yesterday which underperformed in that area when it released its Q1 numbers yesterday.
Investment manager BlackRock Inc (NYSE:BLK) also posted numbers that beat expectations on the top line; however revenues came in slightly light on expectations.
With doubts about the reflation trade causing a readjustment in market expectations, investors will be looking for further clues as to how the US economy is performing with the release of the Fed’s Beige Book for March later this evening which should give further clues as to how the US economy has performed in Q1 ahead of next week’s first iteration of Q1 GDP.
FX
The pound has so far managed to consolidate the gains seen in yesterday’s strong break out, which suggests that it might have further to go. The gains seen in recent days have been a long time coming and there is no reason we can’t head higher in the coming weeks. The market still remains in a negative mindset for sterling with short positions still elevated.
While there are likely to be a few twists and turns over the course of the next few weeks, the US dollar side of the story suggests that we could see further US dollar weakness, pushing the pound back through the 1.3000 level in the longer term. The Brexit negotiations aren’t likely to get underway in earnest until after the German elections in September, which means that the any early skirmishes aren’t likely to tell us too much about how the next two years will pan out.
The Australian dollar has been the worst performer despite a modest rebound in commodity prices, with yesterday’s dovish RBA minutes clearly weighing on the currency as traders weigh up the prospect that the next move in rates might be lower.
Commodities
Gold prices have slipped back from the peaks seen earlier this week, as doubts about the reflation trade ebb a little, however the downside is likely to remain limited, while the US dollar remains weak and geopolitical concerns remain elevated, ahead of the French elections and events on the Korean peninsula.
Crude oil prices have traded sideways after yesterday’s declines as traders mull the prospects of an extension to OPEC cuts against the prospect US inventories that continue to remain at rise on a weekly basis.
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