Europe
It’s been another of trudging through treacle for investors with another mixed session for European equity markets, ahead of the publication of the latest FOMC minutes and the start of the meetings between President’s Trump and Xi.
A weak automotive sector has held back the German DAX, while a firmer oil price has underpinned the FTSE100, while some decent economic reports from both sides of the Atlantic has helped shore up sentiment more broadly. A strong improvement in March services PMI’s, and another bumper ADP employment report has boosted basic resources and financials with the biggest risers being BHP Billiton (LON:BLT) and Antofagasta (LON:ANTO) getting a lift from a sharp rise in copper prices.
On the M&A front UK house builder Galliford Try (LON:GFRD) has stopped trying in its pursuit of Bovis Homes (LON:BVS), (sorry – terrible pun) leaving the small house builder without a suitor after Redrow (LON:RDW) pulled out at the end of last month.
The South Africa effect has once again weighed on Old Mutual and Investec after the ANC closed ranks around President Zuma making it much less likely that he would step down in the short term, after his controversial decision earlier this month to dismiss his finance minister and a number of other senior officials.
US
US markets opened higher after the latest ADP payrolls report beat expectations of 185k for March, coming in at 263k, and raising the prospect of another +200k jobs report on Friday. The strength of the numbers though is likely to play into the argument that wage growth is likely to remain sluggish. The sustained resilience of the numbers would appear to suggest there is still plenty of slack in the US jobs market, which in turn would suggest that we could well see an increase in the participation rate in Friday’s official payroll numbers.
The latest services ISM data also pointed to a robust US economy, but it has shown some strange contradictions with a drop to 55.2 in March from February’s 57.6, a five month low, while the employment component also fell quite sharply, contrasting with the strong ADP number seen earlier.
On the earnings front Monsanto (NYSE:MON) surprised investors by beating expectations in its latest Q2 numbers, which is likely to go down well with Bayer (DE:BAYGN) who are in the process of buying the company for $66bn. Profit came in at $3.19c a share well above consensus of $2.79c while revenues also rose above $5bn, well above the $4.73bn estimates.
Amazon (NASDAQ:AMZN) is also in the news after announcing a $50m deal to stream live NFL games on a Thursday night.
All eyes will be on tonight’s Fed minutes, and the reasons behind the decisions to leave growth and inflation forecasts unchanged, as well as the nature of the dissent from Minneapolis Fed President Neel Kashkari.
Today’s ADP numbers appear to support his contention that there still appeared to be slack in the labour market, and that the FOMC should focus on a balance sheet reduction plan.
FX
This week’s weaker than expected manufacturing and construction PMI data had raised concerns that the UK economy was on the cusp of a sharper than expected slowdown in Q1. Today’s services PMI number has removed some of that concern, with a stronger than expected March reading of 55, which came in above expectations of 53.4.
Trying to match or beat a quarterly growth rate of 0.7% was always going to be a tall order and that looks likely to be the case, however the UK economy still looks on course to show a Q1 performance of 0.4%, while new car sales posted a record rise in March rising 8.4%, probably as a result of brought forward purchases due to some vehicle excise tax changes which are due to come in at the beginning of April.
As a result the pound has rebounded to be amongst the better performers today, along with the Swedish krona which got a lift from some decent industrial production and services PMI data for February and March.
Commodities
Oil prices initially looked set to push back towards the top end of their recent range after API inventories showed a shortfall of 1.8m barrels. An outage in the North Sea is also helping support prices. Unfortunately for oil bulls today’s EIA inventories didn’t show a similar draw, they in fact rose by 1.57m barrels pulling prices down from their intraday highs.
Gold prices have slipped back after today’s bumper ADP employment report gave the US dollar and US yields a lift.
Copper prices have had a good day with the return of Chinese markets after their public holiday.
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