UK and Europe
Caution ahead of this weekend’s oil producer meeting in Doha has weighed on the oil price and broader market sentiment and prompted profit-taking at the end of a solid week of gains for European markets.
Stocks on the continent backed away from two-week highs and the FTSE 100 pulling back from its highest in 2016. Data showing the slowest growth in China for seven years and doubts whether oil producers can agree on an output freeze this weekend in Doha are both good reason to take profits.
The Chinese data confounded some expectations that improved economic performance in February and March would offset the sharp slowdown seen during January. Nonetheless, the data throws off the idea of a hard landing in China and adds credibility to the government’s ability to stabilise the economy with fiscal stimulus.
Mining companies which are reliant on China for commodity demand were the biggest drag on the FTSE 100. The FTSE 350 mining sector still remains well up on the week after economic indicators from China including producer inflation and exports came ahead of expectations. After the surge that’s already taken place this week, it was a tall order to see strong gains off the back of an in-line GDP print.
SAB Miller (LON:SAB) was a top riser on the UK equity benchmark after AB InBev (LON:0O1Z) agreed to some concessions with South African regulators to get the merger passed. A big part of getting agreement from regulators was guaranteeing employment after the deal. Keeping staff in South Africa shouldn’t be too damaging given the region represents one of the biggest growth opportunities in the global beer market. The agreement could however mean bigger layoffs in Europe to make up for any lost efficiencies from the deal.
Shares of Tesco (LON:TSCO) were amongst top risers on the FTSE 100 on a positive crossover from well received results from France’s Carrefour (PA:CARR). Carrefour saw revenues decline but excluding currency effects and volatile petrol sales, revenues rose ahead of expectations led by sales outside of France where sales were flat.
Property stocks have become the epicentre of Brexit speculation outside of currency markets this week. The main theory being that any shortage of skilled immigrant workers will slow building and raise costs. While interest rates are low and there’s a shortage of housing, it’s hard to imagine a Brexit would be enough to bring on hard times for housebuilders.
US
Mostly weak economic data, mixed earnings and drop in the price of led to lacklustre trading in US markets at what has been a good week for stocks. The Dow Jones Industrial Average looks on course to have its highest weekly close since July.
Shares of Citigroup (NYSE:C) gained after the bank beat estimates earnings $1.10 per share when EPS of $1.03 were expected.
FX
Volatility was low in currency markets on Friday after resurgence in the US dollar this week ending in the buck pulling back after a bigger than expected drop in industrial production in March. The dollar index is on course to finish the week higher after falling four of the last five weeks.
The New Zealand dollar was the biggest gainer thanks to well-received Chinese economic data that boosts the prospects for New Zealand’s second biggest export market after Australia.
A smaller than expected slowdown in Japanese production, safe haven flows and selling in USD/JPY before 110 saw the yen rise.
After falling for most of the week, the British pound stood still on Friday. The market sold the pound ahead of a predictably dovish Bank of England which voted 9-0 to leave rates on hold, flying in the face of the stronger UK inflation reported this week.
Commodities
Two days of relatively muted movement in oil prices has finally turned into a sharper fall on Friday as traders reduce risk ahead of this weekend’s meeting in Doha. The price oil has gained ground in past two weeks but is basically unchanged the month preceding the Doha meeting.
The factors at play for the Doha meeting are 1) Is there an agreement to freeze? 2) Are there specific quotas? 3) How involved is Iran?
A cut has been ruled out by Saudi oil minister Al-Naimi when he definitely said “forget about this topic.” A freeze in itself has little meaning when the Saudis and Russia are already pumping at record volumes. By working with nations outside of the organisation, OPEC extends its influence and increases the chance of success of cut down the line.
The price of gold stabilised after a difficult week that has seen the precious metal give up over $30 per oz thanks to renewed strength in the US dollar. A reversal at $1260 per oz has technical analysts debating whether that marks the right shoulder in a possible head and shoulders top pattern. Were the pattern to complete it would have a price objective of below $1150 per oz.
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