Equity markets cautious ahead of weekend French election
Europe
Last night’s terrorist attack in Paris has taken some of the edge of yesterday’s gains in the French stock market, despite some strong economic data out of the French economy for April, with the CAC 40 lagging behind the FTSE 100 and German DAX on the day.
As mentioned, the FTSE 100 has fared the worst this week, its worst weekly performance since last year’s Brexit vote, hurt by a combination of a stronger pound, lower yields and lower commodity prices, while the DAX has also struggled, posting its third successive weekly loss, and worst run of losses since June last year.
Flash manufacturing and services PMI data showed that the French private sector combined, outperformed the German private sector for the first time in over five years, as the low interest rate environment and weak euro boosted economic activity.
On the companies front Reckitt Benckiser Group PLC (LON:RB) is near the bottom of the FTSE 100 after underwhelming investors on its Q1 sales numbers, though the company did say it remained on track to deliver on its targets for the year.
On the plus side, Marks and Spencer Group PLC (LON:MKS) is on the up after a positive broker note from Barclays PLC (LON:BARC) on the basis of the strength of its food business, and its plans to open new stores, as well as closing other underperforming areas.
US
US markets broke a two day losing streak yesterday on comments from US Treasury Secretary Steve Mnuchin, when he stated that the US administration was close bringing forward a plan for “major tax reform.”
These comments have seen US markets hold onto those gains on the open, but before investors break out the bubbly they would do well to remember that a plan is a long way from a policy, and implementation is likely to face significant scrutiny in both the Senate and Congress, something that surprisingly markets would appear to be underestimating, particularly since US politics is rarely that simple.
In company news Tesla Inc (NASDAQ:TSLA) has recalled 53k cars over concerns about their braking systems.
As a barometer of the US consumer, the numbers for Visa Inc (NYSE:V) tend to be a good guide to spending patterns, and today’s latest trading update saw quarterly profit come in well above expectations, with revenues also outperforming. In the US, Visa saw a 12% increase in processed payments from a year ago, suggesting that the US consumer is more confident about using their credit cards.
On the data front the latest PMI’s for the services and manufacturing sector show that economic activity in April slowed from the previous month.
FX
It’s been a disappointing end to a very positive week for the pound after March retail sales slid 1.8%, much more than expected rounding off a disappointing quarter for the UK consumer. With Q1 GDP coming up next week, this consumer data would suggest that the services sector that has helped drive the economy since the Brexit vote, and could well temper expectations around next week’s numbers. Today’s declines have been tempered somewhat by some upbeat comments from new MPC member Michael Saunders who adopted a fairly upbeat outlook for the UK economy.
Rather strangely today’s retail sales numbers contrasted to some fairly positive consumer spending data that we saw from Barclaycard earlier this month, raising the question as to which is the most accurate guide.
Commodities
Crude oil prices haven’t had a great week given the resilience in US supply, and today’s rig count data is likely to reinforce that narrative. While there has been some talk that OPEC members might arrive at an agreement to extend the current quota caps beyond June this is only providing limited support at this time.
Of a wider concern is that Iranian exports look set to hit a 14 month low which suggests that demand is also starting to slide back. If true, this will mean that the current inventory overhang is likely to take longer to clear.
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