Europe
Southern Europe is showing its true colours again as the political uncertainty in Italy and Spain has driven their respective markets lower. The populist parties in Italy, Five Star Movement and Lega, are close to forming a coalition, and this has spooked investor confidence.
Mariano Rajoy, the Spanish prime minister, is under severe pressure as he faces losing his job, or being forced to call a snap general election. As borrowing costs for the Italian and Spanish governments rise, we are seeing severe losses on the FTSE MIB and IBEX 35. Traders despise political uncertainty, and we could see further investment in northern European stocks and government bonds while the turmoil persists.
The move lower in the oil market on account of speculation that OPEC will raise output slightly has hit London-listed stocks like BP (LON:BP), Royal Dutch Shell (LON:RDSa) and Tullow Oil (LON:TLW). The FTSE 100 has a relatively large exposure to the energy sector, which accelerated the drift lower this afternoon.
Shares in Pennon Group (LON:PNN) rallied today after the company announced a strong set of full-year results. Revenue rose by 2.9% and profit jumped by 3.5%, and the dividend was hiked by 7.3%. Higher net tariffs and falling costs contributed to the respectable performance. The company reassured investors by confirming a positive outlook as waste services and energy recovery facilities are in strong demand. The stock gapped higher today, and if its remains above its 200-day moving average at 733p, it could test the 800p mark.
US
The Dow Jones and the S&P 500 are lower on the session as the political uncertainty has hit investor confidence. President Trump has now said the planned meeting between himself and Kim Jong-Un, the leader of North Korea, might still go ahead in June. Yesterday, Mr Trump stated it wouldn’t being be taking place, but he has now softened his attitude. The back and forth has left traders wondering which way to turn.
Today’s US durable goods order report was mixed. The headline figure fell by 1.7%, while economists expected a 1.4% drop, but the report that excluded transportation showed a 0.9% increase, which topped the 0.5% increase that traders were expecting. It suggests that demand for smaller items is high, which is positive.
FX
The US dollar index has resumed its upward trend and reached its highest level in six months. The flight to quality effect is driving up the demand for US government bonds and in turn the US dollar.
GBP/USD is suffering at the hands of the rise in the greenback. Mediocre growth from the UK economy in the first-quarter couldn’t hold back the firmer US dollar. In the first three months of the year, the UK economy grew by 0.3%, which was in line with expectations.
EUR/USD also endured a sell-off on the back of the stronger US dollar. There were no major economic updates from the eurozone today, but the political uncertainty hit the single currency too. International investors are swapping their positions in Italian and Spanish government bonds for US governments bonds, which is compounding the euro sell-off.
Commodities
Gold is largely unchanged despite the firmer US dollar. The metal tested its 200-day moving average at $1,307, and while it remains below that mark its outlook might remain negative. Gold has been in a downward trend for the past two months, and given the bullish run the greenback has been on recently, the negative trend could be set to continue.
WTI and Brent Crude have sold off as there is chatter that OPEC will increase output. The group of oil-producing nations will meet in Vienna next month and traders are now wondering if a production increase will be confirmed. Recently we saw prices hit 42-month highs, and dealers are now cutting their long positions amid talk of the production curb being eased.
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