UK and Europe
Yesterday was a choppy day in markets with stocks, bonds and oil all fluctuating between gains and losses amid a thin economic calendar at the beginning of shortened Easter week.
Fluctuating oil prices, a two-month high for Chinese stocks and M&A activity on both sides of the pond contributed to directionless markets. It’s a shortened week and investors are taking a step back after US stocks recovered all of the year’s losses for the first time last week. There are still a lot of problems around the world and it would appear short-covering and corporate buybacks have contributed significantly to the gains since the bottom in February.
Chinese stocks hit two-month high after it was announced the state agency responsible for margin lending will restart loans to securities firms with interest rates below 3%. The positive message from top Chinese officials was mixed with Premier Li saying he does not favour a currency war but PBOC governor Zhou Xiachuan warning over corporate debt levels.
There was a fork in the road for China early this year between difficult reforms and reheating the economy and officials have clearly chosen the easy road. Markets like easy roads and easy monetary policy.
On the FTSE 100 healthcare shares were leading the gains with Shire (LON:SHP) gaining over 3% whilst basic materials shares were the main drag thanks to the fall in the oil price. The global healthcare sector is rebounding from the contagion last week over the decline in Bill Ackman-backed Valeant Pharmaceuticals (NYSE:VRX).
Sainsbury’s (LON:SBRY) was amongst the top risers after a broker upgrade helped the shares build on Friday’s gains when the supermarket was left as the only bidder for Home Retail group after Steinhoff International (DE:SNHG) pulled out. The market’s still seeing the Argos (LON:ARGR) deal as a good one for Sainsbury’s, largely because of the inventive way in which it will pay. Broadly more positive sentiment towards the supermarket sector after three of the Big four reported rising quarterly sales is helping the gains.
US
It was a quiet start to a shortened week in US markets as anticipation builds towards the Apple (NASDAQ:AAPL) product launch event that is expected to see a new smaller, cheaper iPhone released.
Shares of Starwood Hotels popped and Marriot International (NASDAQ:MAR) dropped after the latter made a higher bid for the former to ward off Chinese insurance company Anbang. Starwood have obviously used the Anbang offer as leverage at the negotiating table but as of yet don’t appear to tempted to end the deal with Marriot.
Shares of Valeant Pharmaceutical were volatile after the ousting of its CEO Mike Pearson generated early gains which degenerated into losses when the firm accused its CFO Howard Schiller of cooking the books.
FX
The US dollar was mostly stronger on Friday after the San Francisco Fed’s Williams said he would support a rate-hike in April, or if not, June if the data supported it. Purely on unemployment and inflation, the data was supporting a hike in March so Williams’ comments put an April rate-hike squarely on the table.
The British pound was an underperformer in currency markets after the resignation of MP and former Tory leader Ian Duncan-Smith. A bit of internal party bickering doesn’t normally impact sterling but this time it has because of the possible implications for Brexit.
Commodities
The Brent-WTI spread tightened on Monday as US oil erased early losses to gain over 2% while the global benchmark was flat. Oil prices have been fluctuating around $40 per barrel as traders question the sustainability of five-week old rally that is starting to attract US shale producers back into the market.
Oil along with most other commodities has been a beneficiary of a weak dollar with US oil touching above $40 per barrel to reach its highest this year. Oil has given up some of its gains following the first increase this year in number of US rigs reported on Friday. This is likely to be an ongoing pattern where any bounce in the oil price is met with US shale producers getting back online, adding to the supply glut.
The price of gold dropped for a third day, but remains higher over the past four days because of the large jump on Wednesday last week. The February rally in gold appears to have run out of steam and a period of consolidation, perhaps involving a drop back down to $1200 per oz appears likely until the next Fed meeting in April.
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.