Markets have built on Monday’s huge rally on Wall Street. The extended gains on Tuesday go some way to unwind losses from one of the worst weeks in recent years for stock markets. We would caution investors not to get too excited. These price moves have all the hallmarks of a ‘dead cat bounce’. Huge up-days do not typically happen in a strong market. Short-covering rallies only occur when there are many short-sellers, something characteristic of a weak market.
Miners have been top risers thanks to a jump in base metal prices. Representing a big chunk of the global supply chain, base metals have proven especially sensitive to the threat of a trade war. A trade war involving China, the world’s biggest consumer of industrial metals was of particular concern. LME copper prices have bounced back from a 3-month low. US-China trade negotiations could easily break down again but markets may have been overestimating the risk of a trade war. We think the most likely outcome will be temporary concessions that will avert tit-for-tat tariffs.
Multinational banks, which in essence provide the glue that sticks the system of international trade together, benefited from receding trade war fears. A notable underperformer amongst banks was Deutsche Bank (DE:DBKGn) after reports that it is looking to replace CEO John Cryan. It seems an apt coincidence that data from New York today shows Wall Street bankers just enjoyed record average bonus pay-outs when Cryan has overseen huge bonus cuts at Deutsche Bank.
There was more dismal news for the retail sector, this time from Swedish retail giant H&M, which reported a 60% slump in profits. We would suggest H&M’s statement that the ‘fashion retail sector has been tough’ was a bit of an understatement. H&M shares (LON:0HBP) plummeted fresh depths, hitting a decade low.
The euro fell after various business and economic confidence indicators slipped in March. It is the third consecutive fall and matches the more temperate economic data from the region this year. Viewed through the prism of foreign exchange rates, the drop in economic sentiment was a positive for European equities, which have been hindered by a firmer euro. From the moment of the 8am fix, the pound slumped and never looked back. Sterling made a four-day low against the dollar.
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