Europe
It’s been a decent start for UK and European stock markets today, after the European Commission became the latest institution to upgrade its economic forecasts for the UK economy projecting 1.5% GDP growth for 2017, an upgrade from the previous 1%, but below the 2% target projected by the Bank of England.
The Commission also upgraded its forecasts for the euro area from 1.5% to 1.6%, while acknowledging that there were some exceptional risks surrounding its forecast. One of the key points was that the Commission predicted that all member states would see economic expansion for the first time in nearly ten years. There were some surprises in the forecasts including the prediction that the Greek economy would grow by 2.7% which seems rather optimistic to say the least.
Nonetheless the more positive risk environment, helped in no small part by a more pragmatic tone from President Trump to China and Japan relations, has helped push the FTSE250 to new record highs, while European markets have also enjoyed a decent session with the DAX pushing above the 11,800 level for the first time in two weeks.
While it’s too early to suppose that President Trump’s attitude won’t change, given his unpredictability, the more emollient tone does appear to be pacifying markets for now.
Amongst the main drivers has been a surge in the price of copper, pushing above its 2016 highs as a strike at Chile’s Escondida mine continued to push up prices. Copper prices haven’t been the only driver, with China iron ore prices also rising sharply, over 10% in the last couple of days to $92.23 from $83.84 on Thursday, to their highest levels since August 2014.
Not surprisingly the basic resource sector has driven the gains with Anglo American (LON:AAL) and Glencore (LON:GLEN) leading the gainers.
Also on the up was Royal Bank of Scotland (LON:RBS) on reports that the bank is looking to cut £800m worth of extra costs as part of its latest digital revamp.
There have been some underperformers with Direct Line being amongst them on the back of a broker downgrade.
US
US markets have continued where they picked up from Friday, opening at new record highs as concerns about protectionism have diminished in the wake of a recent softening of US attitudes towards both China and Japan in the last two to three days.
The initial belligerence of the Trump administration towards China and Japan appears to have given way to a more practicable way of doing things, and while peace may not have broken out quite yet, some welcome pragmatism does appear to be taking hold in Washington.
This change of tack along with the optimism about the reflation trade has given additional impetus to a trend that had been in danger of stalling as recently as a week ago. Investors hope that this theme continues when President Trump meets Canadian PM Justin Trudeau who hasn’t been shy in expressing his opposition to some of Mr Trump’s recent policy pronouncements.
Apple (NASDAQ:AAPL) is outperforming on the back of an upbeat broker note, which says that its services business is undervalued.
FX
The US dollar has stayed firm on the back of this more optimistic tone, and ahead of testimony tomorrow from US Federal Reserve chair Janet Yellen where she is expected to give an upbeat assessment of the USD economy to lawmakers on Capitol Hill.
The pound has been one of the few currencies to compete with the US dollars strength today, ahead of inflation data due tomorrow which is expected to come in close to the Bank of England’s 2% target. A strong number here would legitimise the concerns expressed by MPC member Kristin Forbes in comments last week, about too hot inflation, and start to peel away the fragile consensus on the MPC committee.
Commodities
Today’s admission by Saudi Arabia that it cut output by the most in eight years hasn’t been enough to push oil prices above their recent highs. While there may well have been 90% compliance to the recent production cuts, the fact remains that US inventories surged last week, and that was even before another jump in the US rig count on Friday to 741, from 729 the previous week, and up 12.5% since the beginning of the year.
Iron ore prices have continued their recent run higher, now up over 12% this month alone, while copper prices also hit their highest levels in 20 months, as optimism about future demand pushes prices up.
Gold prices have started to come under pressure on the back of this more optimistic tone.
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "