Europe
European equity markets are broadly higher this afternoon as traders are less fearful for the political situation in Europe. As of Friday, Spain has a new Prime Minister and later today a new government in Italy is likely to be confirmed. The FTSE MIB had a strong start to the week, but the market has given up its gains. The Five Star Movement and League Party may have agreed to compromise on certain issues, but they remain anti-establishment, and might clash with Brussels down the line.
Shares in DS Smith (LON:SMDS) are in demand today after the company announced its intentions to acquire Europac (LON:0FR0mc) for $2.2 billion. The company is planning on funding the takeover by conducting a rights issue and taking out a loan. The two companies have little overlap in terms of clients and DS Smith predicts the deal will lead to savings of €50 million, due to synergies. The firm issued a bullish outlook, and is also keen to expand in the US. The stock hit a record-high today and if the positive move continues it could target 600p.
Wizz Air (LON:WIZZ) shares were given a lift after the airline issued positive traffic figures. Last month, the load factor – an efficiency measurement – increased by 0.8% to 91.9%. The passenger numbers jumped by an impressive 18.1%. The company has expansion plans too, as it announced eight new routes, and this underlines how optimistic the airline is. The stock hit a level not seen since early May and if the upward trend continues it could target 3,700p.
Alfa Financial Software (LON:ALFAAL) issued a profit warning on Friday, and the stock suffered again today after a number of investment banks changed their rating on the stock. Numis, Berenberg and Barclays (LON:BARC) all cut their price targets for the stock, and this has shaken investor confidence.
US
The major US stock markets are higher as Friday’s positive non-farm payrolls update is still helping investor sentiment. Traders viewed the report as respectable, especially the rise in average earnings. It suggests the US economy is ticking along nicely. The Federal Reserve are widely expected to hike interest rates next week. Dealers will be paying close attention to the press conference that follows as it might give a clue about future monetary policy. The prospect of four rate hikes in 2018 has dwindled.
There is still no progress in the trade talks between the US and China. Beijing confirmed the negotiations ‘produced positive and concrete developments’ but nothing has been formally achieved. Investors are treating no bad news as good news, and are content to remain long on equities.
FX
The US dollar index has drifted lower after traders took their profits following the positive move on Friday. The greenback has enjoyed a great run throughout 2018 and now we are seeing an easing as traders are less certain the US central bank will tighten its monetary policy at a quicker pace.
GBP/USD took advantage of the weaker greenback earlier in the day, but has now turned lower. The UK construction PMI reading for May remained at 52.5, while economists were expecting 52. Today’s update adds weight to the argument that the poor reading in March was a once-off – most likely related to the collapse of Carillion at the start of the year.
EUR/USD is benefitting from the slide in the greenback. The single currency could be staging a comeback, and if the recent bullish move continues it might target 1.1830. The single currency managed to push higher even though the Sentix investor confidence survey slipped to 9.3 from 18.4 in May.
Commodities
Gold has gained some ground on account of the softer US dollar, but the metal is finding it tough to crack the 200-day moving average at $1,307. The asset has been in a downtrend for the past two months, and seeing as the Fed are likely to hike interest rates next week, the metal is unlikely to snap out of its recent bearish trend.
WTI and Brent crude are under pressure as traders are fearful Russia and Saudi Arabia could increase oil production in the coming weeks. OPEC are to meet later this month, and there is growing speculation that oil production will be boosted. The energy market has enjoyed a bullish run for the past 11 months, and now dealers are content to unwind their positions.
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