Europe
European stocks shot higher on Tuesday after the four-day weekend, playing catch-up with US markets which rallied on Monday. Estimates for the timing of the first US rate-hike have been pared back after the disappointing non-farm payrolls report over Easter.
The jump in Europe was bolstered by M&A amongst parcel delivery giants FedEx Corporation (NYSE:FDX) and TNT Express (AMS:TNTE). It could be the beginning of a year-long trend of US companies putting their strong dollars to work in Europe.
There was also a certain degree of relief that according to IMF Chief Christine Lagarde; Greece won’t attempt to delay its €450m payment to the IMF this week. Greece’s growing cash shortage and recent flirtation with Russia is keeping markets on their toes.
UK
Global central bank support, an upbeat report from the CBI and positive economic data helped UK stocks to one of the strongest sessions in weeks.
A report from the Confederation of British Industry that said UK economic growth held steady in the first quarter and may pick up momentum in Q2 put at ease some of the concerns surrounding the uncertainty of the outcome of the general election.
The UK’s service sector expanded last month according to the Markit purchasing managers index which jumped to 58.9 from 56.7 and well ahead of the 57 forecasted.
The FTSE 100 surpassed 6,950 spurred on by merger talk and could well be setting up for another run at the 7k mark and new all-time highs. Royal Mail (LONDON:RMG) shares benefitted from industry news that Fed Ex (NYSE:FDX) is buying Dutch peer TNT. Talk of mergers between Glencore (LONDON:GLEN) and Rio Tinto (LONDON:RIO) and between Vodafone Group PLC (LONDON:VOD) and Liberty Global plc (NASDAQ:LBTYA) set the mining and telecoms sectors alight.
US
US stock markets were eying up a second day of gains after Fed speakers suggested the economy was only in a temporary dip but that it might be best to put off tightening policy in the next two policy meetings.
FOMC minutes are released and Alcoa Inc (NYSE:AA) reports earnings, officially kicking-off the first-quarter earnings season on Wednesday. Less urgency on behalf of the Fed to hike rates lowers the bar for US corporate earnings since profits will have the backup of loose monetary policy.
FedEx is buying Dutch rival delivery company TNT Express for €4.4bn. Hopes that the deal can actually get done seem a little overblown given that UPS has already tried and failed to takeover TNT following the intervention of European regulators.
FX
The US dollar was generally stronger on Tuesday as weakness seen after the Friday jobs report was undone by hawkish comments from Fed speaker Lockhart. Lockhart suggested a rate-hike in June, July and September should all be on the table, though conceded his preference would be not to move in the next two meetings.
Improved service-sector activity but at a level below expectations according to Markit PMI data for the Eurozone caused a drop in the euro against the US dollar and British pound. EUR/USD dropped below 1.0850 and has fully undone the strength seen on Friday.
EUR/GBP fell beneath 0.73 after surprising strong service sector data in the UK sent the pound higher against most counterparts barring the US dollar when GBP/USD was trading at a break-even.
The Australian dollar was a lone outperformer after the RBA surprised markets by keeping rates on hold when a cut was priced in. AUD/USD expanded to above 0.77 but came off its highs.
Commodities
Gold failed to close past $1,220 per oz on Monday for the 6th day since February 19 and saw further losses on Tuesday as bullion funds took the opportunity to take profits at seven-week highs.
There was some unusually high volatility in copper on Monday with the metal increasing by almost 20c per lb before finishing the day lower. On Tuesday copper rallied over 1% but the strength may be short-lived given the extent of the sell-off yesterday.
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