Europe
The FTSE 100 is firmly higher as the strength of commodity stocks has made the British market the envy of Europe. BP (LON:BP) and Royal Dutch Shell (LON:RDSa) both started out weaker on the session, but rallied in the wake of the announcement from OPEC. The cartel agreed on a ‘real’ production increase of 600,000 barrels per day (pbd). The FTSE 100 has relatively high exposure to energy and mining stocks, and that is playing out today.
The DAX took a knock after President Trump threatened to slap a 20% tariff on all cars imported from the EU. It was only a matter of time before Mr Trump turned up the heat on the EU, and now the car manufacturers are in the firing line.
AstraZeneca (LON:AZN), Shire (LON:SHP) and GlaxoSmithKline (LON:GSK) are in the red today as traders dump pharma stocks in favour of riskier ones. Pharmaceutical stocks are deemed to be defensive, and are often in demand when traders adopt a more risk-averse approach, but given the bullish sentiment today, the shares are lower.
Barratt Developments (LON:BDEV), Taylor Wimpey (LON:TW) and Persimmon (LON:PSN) are in demand today after Liberum, a stockbroking firm, announced that sensitivity to the British housing market is exaggerated. Yesterday, home builders declined after the Bank of England (BoE) issued a more hawkish update than expected. Three BoE policy makers voted in favour of hiking rates, and that caught traders off guard as they were only expecting two votes in favour of a rate hike. Liberum feel the UK housing sector sell-off was overdone and dealers are snapping up the stocks today.
Airbus (LON:0KVV) revealed it will leave the UK if the British government decides to leave the EU without a deal agreed with Brussels. The company has roughly 14,000 employees in the UK, and the announcement has captured headlines due to the size of its workforce and notoriety. The share price has been in a solid upward trend since July 2016, and if the positive move continues it could retest the €105.00 level.
US
The Dow Jones and S&P 500 are higher as oil and gas stocks lead the charge. Global sentiment is positive and this has played a role in the rally of US stocks too. For the time being, the OPEC announcement has taken traders’ minds off the trade tensions. It is worth remembering that we are no closer to an agreement between the US and China, and now President Trump has threatened to impose a 20% tariff on all cars imported from the EU. As we saw with China, the US markets are likely to handle the situation better that their European counterparts.
FX
GBP/USD is still benefitting from yesterday’s BoE update. The pound endured a major sell-off against the US dollar in recent months, and the fact that three BoE policymakers voted for a rate hike triggered a wave of buying. If the pound holds above the 1.3102 mark it could extend its gains.
EUR/USD hit its highest level in over a week, and the move is largely down to the weakness in the US dollar. This morning, France and Germany revealed the latest manufacturing and service reports, and they were broadly mixed. The currency bloc has been muddling along recently and the reports suggest the region is still in an economic malaise.
USD/CAD hit a one-year high after Canada released a disappointing retail sales report, and the inflation update was underwhelming too. In April, Canadian retail sales dropped by 1.2%, while economists were anticipating no change on the month. The May inflation report showed a 0.1% increase, but traders were expecting a 0.3% increase.
Commodities
Gold has been nudged higher by the dip in the US dollar. Yesterday the metal hit a six-month low, as the US dollar index reached an 11-month high. Today, we are seeing those positions being reversed. The metal has been in a solid downward trend since April and we haven’t seen any signs of a turn around.
WTI and Brent Crude are higher as OPEC confirmed it will raise output by 600,000 bpd in ‘real’ terms’. The group agreed in principle to boost production by 1 million bpd, but given that some members are tapped out and can’t increase output, it will equate to a 600,000 bpd in reality. Russia are not a member of Opec, and are keen to raise output too.
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