UK and Europe
European markets were broadly positive on Tuesday amid positive corporate results as a rally in commodities including silver, which reached its highest since June, caused a jump in resource companies. The resilience of oil which no longer has the support of a functioning cartel to support prices is encouraging risk-taking across the board. Traders have wiped away the sweat brought on by the breakdown of the oil talks in Doha and are pressing on the accelerator pedal.
The FTSE 100 has moved back above 6,400, touching a four-month high. The German DAX has made a new three-month high and crossed back above its 200-day moving average for the first time since December 3.
European stocks outperformed those in the UK. The relatively weaker close for UK stocks could be the first signs of a shift in leadership in Europe. It could also be that stocks within the Eurozone are starting to sizzle before Thursday’s ECB meeting and the prospect of soothing commentary from ECB head Mario Draghi.
Strong results from Primark-owner AB foods (LON:ABF), advertising group Publicis (LON:0FQI) and L’Oreal (LON:0NZM) as well as an increase in iron ore shipments from Rio Tinto (LON:RIO) have added to confidence levels.
A suggestion from HSBC (LON:HSBA) of a possible stock buyback on top of relief that US banks have not had as much of a stinker of a first quarter as had been feared helped HSBC shares rise towards the top of the FTSE 100. Trading amongst other banks was more mixed with RBS (LON:RBS) stronger but Barclays (LON:BARC) and Lloyds (LON:LLOY) more subdued.
US
US stocks were moderately higher in opening trade with the Dow weighed down by disappointing results from Goldman Sachs (NYSE:GS) which beat EPS but missed revenue estimates.
The major drag on earnings was the trading and investment banking business. The first quarter is typically the best of the year as money managers invest new money and readjust portfolios for the year ahead but a crash in equity, oil and HY bond markets saw money leave the market instead. The volatility has seen companies shy away from IPOs too, though a number of mega-mergers have buffeted advisory fees, but overall investment banking revenues have fallen.
Goldman’s CEO Lloyd Blankfein described “headwinds across virtually every one of out businesses”. The turmoil in January and February isn’t all bad news because the banks are reporting a return of client activity in March and April thanks to the huge rebound that’s taken place in oil and equities.
FX
The US dollar was broadly weaker on Tuesday as commodities and commodity-backed currencies soared and housing data including building permits and Housing starts missed expectations.
Forecasts for first quarter US growth have now dropped to zero, compounding Fed Chair Janet Yellen’s desire for a cautious approach to raising rates. Boston Fed President Eric Rosengren who said markets were too pessimistic on inflation and the economy was largely ignored.
The British pound pushed to its highest since March amid a multitude of comments on Britain’s possible exit from the Eurozone including from Bond kingpin Jeff Gundlach. Justice Secretary and leave-campaigner Michael Gove suggested the UK would be part of a European free-trade zone and negotiate its own version of trade agreements with the EU. The rise in the pound could be interpreted as markets seeing Gove’s comments as unlikely to move the nation to vote for Brexit. More likely, the British pound has settled into a trading range. The recent strength in GBP/USD may struggle to move beyond 1.45.
Commodities
Gold prices leaped $25 to back over $1255 per oz on Tuesday as silver reached its highest since June. Even if the Fed does chooses to hike interest rates in June, there probably isn’t room for much more because of the US election, leaving room for gold as a non-interest bearing asset to rise further. Gold has held its ground while equities have risen, when markets do rollover again, gold stands to well.
The price of oil continued to make ground on Tuesday and is now back close to its highest this year ahead of API inventory data. There surge in oil since the Doha discord shows there’s a lot more to the rally off the lows this year than hopes of a supply freeze. A weaker US dollar, the improved outlook for China’s economy and receding US oil production have trumped OPEC politics.
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