UK and Europe
The confirmation of a new British Prime Minister, hope of stimulus in Japan and a possible Italian bank bailout have all contributed to a risk-on moves in global markets.
Theresa May as the new PM has offered some welcome certainty in uncertain times. Theresa May’s day has actually reduced distress signals.
The certainty of Theresa May stepping into the top job in UK politics ahead of schedule has had the perhaps unintuitive effect of weighing on UK stocks. It was the drop in the sterling that cushioned the ‘Brexit blow’ because of its positive effect on UK company foreign earnings. Subsequently, the rebound in the pound is weighing on the FTSE 100, notably the big multinationals including Vodafone (LON:VOD), GlaxoSmithKline (LON:GSK) and Diageo (LON:DGE).
Airlines EasyJet (LON:EZJ) and IAG (LON:ICAG) were some of the top risers on the FTSE 100 in a positive read-across from strong gains in American Airlines (NASDAQ:AAL) and United Continental (NYSE:UAL) after a broker upgrade and strong Q2 revenues respectively. Qatar Airways investment in LATAM Airlines (NYSE:LFL) has helped raise hopes of further consolidation in the airline sector.
The biggest Brexit losers of banks and homebuilders were amongst the top performers on the FTSE. That ‘market risk’ stopped US money laundering charges against HSBC (LON:HSBA) does support banks’ “too big to jail” status, making them a safer investment.
US
US stocks opened higher on Tuesday taking the S&P 500 to a new record intraday high buoyed by a rise in oil prices, expectations of stimulus in Japan and the UK and Alcoa (NYSE:AA) kicking off earnings season by beating quarterly earnings expectations.
Hard drive-maker Seagate Technology (NASDAQ:STX) was one of the S&P 500’s biggest risers after it beat quarterly earnings expectations and announced it would slash 14% of its workforce.
Amazon (NASDAQ:AMZN) shares pulled back after two strong weeks of gains leading up to Prime Day.
FX
The British pound surged following confirmation that Theresa May will take over as new British Prime Minister. The pound has risen over 1% against the dollar today, adding to yesterday’s gains when Andrea Leadsom ended her campaign to become the Tory party leader.
Sterling came off its highs following a testing exchange between Bank of England Governor Mark Carney and MPs. Mr Carney was forced to defend the Financial Policy Committee’s forecasts over the impact of the Brexit vote. The minimal fallout after Brexit did make the BOE scaremongering question from the Treasury committee a valid one.
The Japanese yen was the biggest FX market faller on news Japan could introduce new fiscal stimulus measures. The yen has dropped since fiscal stimulus could pre-empt further monetary easing from the Bank of Japan later this month. Japanese Cabinet Secretary Suga has said Prime Minister Shinzo Abe has already ordered a new economic stimulus package. Forecasts are in the range of 10 trillion yen for the size of the stimulus package. Anything less could be taken as a disappointment and counter current yen declines.
A jump in oil and copper prices supported a rise in the Australian dollar and other commodity resource-backed currencies.
Commodities
Crude oil prices rallied strongly on Tuesday after a bullish report from OPEC and continued supply disruptions in Nigeria. OPEC suggested crude oil demand in 2017 will increase at the same rate as 2016 whilst non-OPEC supply will come down. Weekly API inventories data is reported later on Tuesday.
The price of gold pulled back for a second day as global equities rallied, reducing the need for holding funds in a safe-haven. Gold declines were limited by weakness in the US dollar which supported commodities more generally.
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