UK and Europe
Discord in Doha has left oil prices weaker but an initial drop across European equity markets gave way to relief buying, taking stock indices back into the positive. Sentiment improved when the oil price recovered from its initial knee-jerk reaction lower and focus shifted to corporate earnings.
An agreement always seemed highly doubtful when Iran had said it would not freeze output, having just come out of sanctions and Saudi Arabia said it wouldn’t if Iran didn’t. As soon as Iran shunned the meeting by not sending its oil minister it was an un-done deal.
The oil price is defining the top and bottom end of the FTSE 100 on Monday after the Doha talks collapsed without agreement. The oil and gas sector is naturally leading the declines on the UK benchmark after dashed hopes of a production freeze sent oil prices lower. Equally travel and leisure stocks are amongst the top risers as the biggest beneficiaries of cheaper fuel, helped by a broker
upgrade to TUI (LON:TUIT) and Thomas Cook (LON:TCG).
Mining stocks, a key driver of UK stock market returns since the bottom in February were flat, showing relative strength on a bad news day.
Shares of British gas-owner Centrica (LON:CNA) fell to the bottom of the FTSE after the company announced a 1.5% drop in its UK household energy customers. Efforts to reduce costs including the axing of 3000 jobs are being ignored by investors focused on excessive executive pay.
ARM Holdings (LON:ARM) is the second biggest decliner ahead of its and US tech company quarterly reports this week. The falls comes on top of a sharp drop last week as investors fear a slowdown in tech sector earnings.
US
US stocks were mixed in early trading on Monday with the Dow Jones showing small gains whilst the S&P 500 was flat as investors digested corporate results and a fall in the oil price.
Morgan Stanley (NYSE:MS) continued the trend set out last week by big money-centre banks by showing a marked decline in profits but beating lowered estimates. Earnings plunged by 53% whilst revenues fell 21% with a slump in trading and investment banking driving the weakness. The investment bank blamed lower client activity on declines in cash equities, the depressed energy price and a challenging credit environment.
Shares of PepsiCo (NYSE:PEP) were stable after the company reported a 24% drop in net income and a 3% fall in quarterly sales but beat EPS estimates adjusted for currency moves and an impairment charge related to its interest in Tingyi-Asahi Beverages.
FX
The US dollar was mostly lower on Monday reflecting dovish tones from the Fed’s Bill Dudley who said the US is seeing “significant uncertainties” and “headwinds to growth”.
The Canadian dollar was the weakest amongst major currencies, correlating with a drop in the dollar, though like oil came off its lows. USD/CAD remains below 1.30.
Warnings over the costs of Brexit from a report by the treasury ahead of a speech on the issue in the UK by US president Obama have lifted the chance of Britain staying in the EU, adding some support to the pound. EUR/GBP remains below 0.80 for a fourth day.
Any positive economic surprises for the UK are unlikely to offer much relief for the pound which should find its fair share of sellers in the context of an already dovish-leaning Bank of England Monetary Policy Committee terrified of Brexit.
Commodities
The price of crude oil dropped sharply in typically quieter Asian trading after Sunday’s oil producer meeting in Doha failed to produce an agreement on freezing output. Tit-for-tat sabre rattling between the Saudis and Iranians scuppered a freeze that apparently all other participants, including non-OPEC countries Russia and Mexico were in favour of.
Oil has recovered from its initial knee-jerk reaction selling to settle at around a 3% loss, bolstered by lower supply from Kuwait where oil workers are on strike protesting over pay.
An agreement always seemed highly doubtful when Iran had said it would not freeze out, having just come out of sanctions and Saudi Arabia said it wouldn’t if Iran didn’t. Still, the fact that the meeting went ahead appeared to leave the door open to at least some sort of face-saving, unbinding agreement. As soon as Iran shunned the meeting by not sending its oil minister it was an un-done deal. Perhaps Saudi Arabia thought Iran would soften its tone at the meeting with agreement on a future date or output level to freeze. If no pact could be reached on Sunday, it seems doubtful the next OPEC meeting on June 2nd will be any different.
Gold and silver gave back early gains as markets gained their composure in the aftermath of the Doha meeting.
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