Europe
It’s been another positive day for European markets with the German DAX hitting its highest levels since the summer of 2015, and while other European markets have also gained, the FTSE100 is the one index that has underperformed, relative to the rest, as a result of the continued rebound in the pound.
It may seem counterintuitive but however polarising Donald Trump is, and is likely to continue to be, financial markets take a rather more cold hearted view as basic resource and infrastructure plays push higher on the back of yesterday’s executive order with respect to the Keystone oil pipeline and his tweet yesterday that he will look at starting to implement his policy on building a wall on the Mexican border.
Anyone hoping for a toning down of his pre-election rhetoric, or a more nuanced approach has been swiftly disabused of this notion, with commodity prices gaining traction on expectations of higher demand, as well as a weakening of the US dollar.
Construction and equipment hire companies have been amongst the biggest gainers with Irish construction company CRH (LON:CRH), who have a significant US operation, having a good day, along with industrial equipment hire company Ashtead Group (LON:AHT).
Financials and banks have also taken heart from a decent trading update from Spanish bank Santander (MC:SAN), helped by a decent performance from its Latin American business, which has sent the share price to its highest level since November 2015.
This expectation of an infrastructure boom has seen bond yields start to push back up again, on higher inflation expectations, which in turn is also acting as an additional tailwind for financials as a rise in yields and widening spread differentials improve future profitability prospects.
The telecoms sector has had another bad day after BT’s woes yesterday with Vodafone (LON:VOD) sliding sharply on the back of a broker downgrade.
Gold miners Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) have also been cast adrift after gold and silver prices came under pressure, with gold hitting a one week low.
US
US markets carried on their momentum from yesterday, opening higher with the Dow pushing through the 20k level for the first time ever and notching another milestone. In all honesty it couldn’t have come a moment too soon, finally putting us out of our misery so we can start to focus on something else more important.
On a serious note, while it’s important to acknowledge the breaking of a significant milestone, in the broader scheme of things it probably doesn’t matter that much, apart from giving investors a feel good boost.
Of more importance is whether or not it is able to sustain these gains at a time when US stocks are already considered expensive.
On the earnings front Boeing (NYSE:BA) saw its Q4 profits come in at $2.47c a share above expectations of $2.32c though revenues came in short at $23.3bn, below expectations of $23.53bn. The company said it expected to deliver more planes in 2017, though it’s may come under pressure with respect to its government business if new US President Donald Trump insists on squeezing their prices.
The company was on the receiving end of a tweet from the new President lambasting the cost of replacing the Air Force One Presidential Boeings a few weeks ago, which suggests that margins on government contracts may well not be as large as they used to be.
Aluminium producer Alcoa (NYSE:AA) also saw an improvement in revenues largely as a result of higher prices, while posting profits of $0.14c a share.
FX
The pound is amongst the better performers today as the rally that started over a week ago has continued to build momentum, as the one way bets that built up prior to yesterday’s UK Supreme Court ruling continue to get unwound. Some decent industrial trends manufacturing data from the CBI, along with weakness in the US dollar is helping the pounds cause, but it is gaining across the board, hitting a six week high against the greenback above 1.2600, with the potential to rise even further.
The Australian dollar is amongst the worst performers after the latest CPI inflation numbers came in much softer than expected in December, thus removing the prospect that the RBA might look to tighten policy, in the wake of a pickup in economic activity.
Commodities
An increase in US stockpiles in the latest API data, and Libyan production at a three year high has seen oil prices slip back, as financial markets reserve judgement on the so called “fantastic” compliance by OPEC members to the agreed production cuts which were agreed last month.
Gold prices have also slipped back hitting a one week low on a combination of rising yields and new record highs for US stock markets.
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