Europe
On Tuesday, European markets continued the pullback that has so far characterised the week ahead of the first policy meeting of the European Central Bank since it began its quantitative easing policy.
There had been a slight lift early on in Europe on excitement over another takeover deal, with Nokia Oyj (ST:NOKI) planning to buy telecoms peer Alcatel-Lucent (PARIS:ALUA), but gains ebbed away by late morning. Worries over reported Greek government preparations in case of default, were only slightly eased by an official denial out of Athens.
UK
Another poll put The Conservative Party ahead for the general election in May, but the likelihood of a hung parliament was again put aside by equity markets.
The UK avoided deflation in March but the nation’s stocks traded higher since the non-existent price growth leaves the Bank of England no choice but to keep interest rates where they are. Consumer price inflation was flat at 0% in March, with prices excluding food and energy falling more than expected to annual rate of 1%, the lowest since 2006.
The low prices, alongside general optimism for the UK economy helped same-store sales rise 3.2% in March, according to the British Retail Consortium.
Better than expected earnings from US banking giants JP Morgan Chase and Wells Fargo (NYSE:WFC) helped UK-listed Barclays (LONDON:BARC), Lloyds (LONDON:LLOY) and Royal Bank of Scotland (LONDON:RBS) trade higher. The banking sector is getting renewed interest, including broker upgrades, given the prospect of higher rates in the US and low valuations.
Higher Oil prices and renewed speculation it may be subject to a takeover sent Tullow Oil (LONDON:TLW) higher amongst mid-caps.
US
US stocks were looking heavy on Tuesday, despite fairly upbeat reports from money-centre banks, as Dow-component Johnson & Johnson (NYSE:JNJ) guided lower and retail sales grew less than expected in March.
US retail sales rose 0.9% month-over-month against expectations of a 1% gain. It’s the best retail sales report in four months and is suggestive of a spring economic recovery but with stocks close to all-time highs, the numbers needed to be better.
FX
The Dollar was lower across all major counterparts after retail sales missed expectations and prompted a bout of profit taking at 100 in the dollar-index. Redbook retail sales also missed while producer price inflation declined in line with expectations to an annual rate of 0.9%.
The pound had fallen after the UK inflation data but GBP/USD wasn’t able to take out the recent 4 ½ year lows and rallied on the weak USD.
Eurozone industrial production was much better than expected, so once US retail sales missed, EUR/USD was bought, gaining over 100 pips to 1.07.
Commodities
Gold and Silver were notably weak in the face of falling equities and the drop in the US dollar. Unless gold can push beyond $1225 per oz, which has been capping the price since February, it appears destined to keep trading around $1,200.
The weak dollar helped crude oil trade higher as speculation continues that US oil production is about to slow after the rig count dropped to the lowest since 2010. There’s also a realisation that any increase in production from Iran, if sanctions are lifted, will not hit physical markets for several months.
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