Europe
European stock markets have enjoyed a positive day buoyed by an improving macro-economic outlook as composite PMI’s in France and Germany enjoyed a decent boost in January primarily driven by a big jump in services sector activity, with the German DAX posting its best levels since April 2015, though the FTSE100 has underperformed as a result of a poor set of numbers from HSBC which has put downward pressure on the UK banking sector.
This improvement in business activity in Germany and France came in at its highest levels since April 2011, though more concerning is the rise in prices, which is likely to ramp up pressure on ECB President Mario Draghi to start looking at measures to start tapering the ECB’s bond buying program early.
In contrast to the mood on stock markets bond markets have a somewhat different take on events with French bonds continuing to slip back on mounting political concerns. The gap between 2 year German and French yields has blown out to its widest level since the height of the Eurozone debt crisis in mid-2012, reflecting a reluctance to own French bonds.
A week of full year banking results has got off to a disappointing start today after HSBC posted results which missed expectations. A 62% fall in profits to $7.2bn was well below market expectations, with management blaming various write-downs, including $2.4bn in its European private bank, as well as slowing economic growth in Hong Kong and the UK for the slowdown.
Given that the UK was the best performing G7 economy in 2016 this seems a rather poor excuse, while the weaker pound should have acted as a decent boost as well. The bank saw revenues fall in Q4, while seeing operating costs rise despite being well into a restructuring program that began in 2011.
On the positive side the Global Banking and Markets division was able to take advantage of the higher yields and volatility like most of its peers at the back end of 2016, while the bank also announced a $1bn share buyback.
International hospital group Mediclinic has seen its share price slide after warning that its Middle Eastern business in Abu Dhabi would continue to underperform.
Also doing well Rolls Royce (LON:RR) has continued its gains from yesterday after being added to Goldman’s conviction buy list.
Rising Oil prices have also given a lift to the oil and gas sector with Royal Dutch Shell (LON:RDSa) and BP (LON:BP) shares on the up.
US
US markets returned from their long weekend with more record highs as a host of new earnings announcements beat expectations.
It looks like being a good day for US retailers with Wal-Mart (NYSE:WMT), Home Depot and Macy’s all beating expectations.
Starting with Wal-Mart the company posted profits of $1.30c a share and while revenues came in slightly short the fact that quarterly sales’ showed a decent increase appears to suggest that the company is riding the consumer recovery in the US.
Home Depot also posted numbers ahead of expectations with profits and revenues beating expectation, as an improving housing market boosted its numbers, as US consumers spent money on improving their homes.
Macy’s completed a hat-trick of numbers with profits of $2.02c a share against an expected $1.96c, though revenues came up a little short. On the downside comparable sales showed a decline, but positive forward guidance appears to have assuaged some concerns that the company is failing to arrest the recent slide in profits.
In other news Yahoo has agreed to take a $350m reduction to its deal with Verizon after the revelations of two previously unknown cyber-attacks came to light in the aftermath of the recent deal.
On the data front the preliminary manufacturing and services PMI’s for February show that the US economy slowed somewhat in February, slipping back to 54.3 and 53.9 from readings above 55 in January.
FX
The US dollar has taken another leg higher today after comments from new FOMC voting member Patrick Harker that he wouldn’t rule out the prospect of a move on rates in March. Aside from the fact that it would be most unusual for any Fed official to prejudge an upcoming meeting in this way his comments don’t really add that much to last week’s comments from Fed chief Janet Yellen.
The pound has slipped a little against the US dollar but has held up overall despite the latest public finance figures showing a smaller surplus for January than had been anticipated.
Commodities
Oil prices have pushed up to their highest levels since the beginning of the year after OPEC secretary general Barkindo commented that despite a 90% compliance rate for production cuts to output, more measures may be needed to curb a supply glut which so far shows no signs of receding.
This has seen speculative long positions in oil to climb to record highs as traders bet on further upside to prices in the coming weeks. What could possibly go wrong, given that inventory levels remain at record levels?
Gold prices have slipped back from their recent highs on the back of a stronger US dollar.
"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. "