Europe
It’s been a day of fairly decent earnings updates, though it has been helped by the failure of French presidential candidate Marine Le Pen to lay a glove on Emmanuel Macron in last night’s final presidential debate, ahead of this weekend’s final vote.
All European markets, bar the FTSE100 have outperformed, with the CAC40 continuing to make new multi-year highs, and in the process gaining a foothold above the 5,300 level that it struggled to get above last week. The German DAX has also continued to move up to new record highs, helped by a tailwind of some decent April services PMI numbers from Spain, Italy, France and Germany.
The FTSE100 has been the exception, weighed down by an underperforming mining sector, a slide in oil prices, and some concerns about UK retail.
It was a strong start initially for Royal Dutch Shell (LON:RDSa) this morning after reporting a strong rebound in profits in the first quarter. The renewed stability in oil prices at or around $50 a barrel has seen profits more than double to $3.75bn and well above consensus expectations. More importantly they appear to justify the somewhat risky decision by Shell management to pay such a big price for BG Group and its LNG assets.
The share price has pulled back from its intraday highs in the afternoon session after oil prices slid back below $50 a barrel underscoring the extent of how closely the fortunes of the big oil majors are correlated to the ebb and flow of oil price movements.
It’s been a strong day for financials with HSBC (LON:HSBA) showing a decent improvement in its first quarter, with profits of $5bn, well ahead of expectations, helped by the recent improvement in the interest rate environment as well as a rise in income from its investment banking division. This was in contrast to Barclays (LON:BARC) which disappointed in this regard but more in keeping with its US peers, which saw similar improvements.
On the flip side it’s been a case of “watch out below” for clothing retailer Next (LON:NXT) since December, and its first fall in annual profits for eight years in March. The difficult retail environment continues to hamper Next’s retail performance, after sales slid 8% in the first quarter, though another decent performance from Next Directory diluted some of that. Since its peaks of 2015, the share price has almost halved. The company also lowered the upper range of its profit guidance for the year by £40m.
The difficult retail environment in Q1 was always going to be challenging for retailers and Next’s woes would appear to support that, but they haven’t been helped by gaps in some of its product ranges, which aren’t likely to be fixed until the autumn. That being said while the retail environment is tough sector peers like Ted Baker (LON:TED), ASOS (LON:ASOS) and Inditex (MC:ITX) are blowing it into the weeds, begging the question as to whether it is on course to become the next Marks and Spencer (LON:MKS).
Mining stocks have also come under the cosh on the back of further weakness in commodity prices with Anglo American (LON:AAL) sliding for the third day in succession, along with Antofagasta (LON:ANTO).
US
US markets opened higher in the wake of another decent weekly jobless claims number and some more decent earnings reports from Facebook (NASDAQ:FB) and AIG (NYSE:AIG).
Facebook reported better than expected numbers of $1.04c a share, with the number of daily users jumping 18%.
AIG continued the strong banks theme with another beat on earnings helped by an improvement in investment returns and higher interest rates.
On the data front weekly jobless claims slipped back to 238k, while unit labour costs rose 3% in the first quarter, which has helped push yields up. On the flip side of that productivity growth slid 0.6%.
FX
The euro has gone on a run to the upside after some strong services PMI numbers across the board, with Italy in particular surprising strongly to the upside returning its best number since August 2007.
The pound has had a rather more mixed day, declining against the euro, while rebounding against the US dollar after April services PMI beating expectations in the same way as this week’s manufacturing and construction numbers did. Sterling continues to benefit from the prospect of a resilient UK economy and the prospect of a potentially enhanced Conservative party mandate in next month’s election, though a poor performance in today’s local elections might undermine that.
The Australian dollar has continued to come under pressure after another weak Chinese PMI reading raised further concerns about demand for commodities in the world’s second largest economy.
Commodities
Oil prices have slipped back again on reports that Russia hasn’t made a decision on extending the output deal into the second half this year, with Brent prices slipping back to levels last seen in mid-March and below $50 a barrel, and potentially the lowest close since last November. This is significant given that it took Russia until April to meet the quota target, agreed at the end of last year. This tardiness suggests a rather lukewarm approach, compared to Saudi Arabia, who have met their quota targets.
Copper prices have also continued their slide down for three days in succession, undermined by another weak reading from the Chinese economy, against a backdrop of rising warehouse inventories.
Gold prices have continued to come under pressure on the back of a stronger US dollar with Fed fund futures assigning a 97.5% probability of a US rate rise in June.
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