Wall Street traded higher on Thursday, ending a multi-session losing streak. Investor confidence was bolstered by strong US data, just a day after the Fed hiked rates for a third time. Overnight we saw the relief rally from the Fed’s actions kick in, as the markets adjust to the new higher interest rate economy. A solid performance from durable goods, in addition to treasury yields falling from recent highs, lifted sentiment pushing US equities northwards.
No signs of oil rally slipping up
Whilst US markets closed off their highs, Asian markets powered upwards overnight, supported by a lift in oil. Oil will remain in focus across the European session as it is on track for its third weekly gain. Concerns over a tightening in the physical market from Iran’s supply loss and declining Venezuelan output pushed oil to $82.44 overnight. This is just shy of its recent 4 year high. OPEC are showing no immediate rush to boost production, to compensate the tightening in supply.
We see concerns over tightening continuing to grow. This is a complete snub of President Trump’s agenda after his repeated attacks on OPEC for the rising price of oil. We expect oil majors to continue to find support from the higher oil prices.
Italian FTSE MIB under pressure after budget agreed
After moves higher on Wall Street and Asia overnight, European bourses were looking decidedly mixed heading towards the open. Italian futures are teeing the FTSE MIB to be a standout decliner when the markets open.
Investors are unnerved by the Italian government’s agreement for a sharp increase in public spending. Rome has set out plans to spend its way to a budget deficit of 2.4% of the GDP in 2019. The markets had been waiting patiently to see what spending plans the Italian government were going to pull together. But the plan put forward is confirming investors’ fears, with a standoff in Brussels almost certain. Whilst the FTSE MIB futures are trading heavily lower the euro is remaining resilient in early trade. This means the markets are seeing this as a domestic issue right now, rather than something that is an immediate risk to the eurozone region. There is still scope for political jitters to hit sentiment for the euro as the day progresses.
Pound resilient despite drop in consumer confidence
After two straight sessions of declines, the pound was also showing signs of resilience this morning. Despite UK consumer confidence dropping by more than forecast the pound lifted in early trade. GFK consumer confidence figures declined to -9, below the -7 forecast. Unsurprisingly Brexit remains the key culprit. The lack of clarity on Brexit is leaving consumer concerned over the health of the economy. Although, so far confidence towards personal finance is still healthy. Consumers are still happy to spend, and recent solid retail figures support the survey evidence. This goes some way to explaining why the pound was able to shrug off the disappointing figure.
UK GDP no changes forecast
Sterling will remain in focus as investors look ahead to the final revision of UK Q2 GDP data. No changes to the revision are expected, so we expect the reading’s impact on the market to be minimal.
Opening calls
FTSE to open flat at 7545
DAX to open 5 point lower at 12430
CAC to open 11 points lower at 5529