Europe
It’s turned out to be a decent month for European markets in the wake of this week’s Macron bounce, with strong gains across the board, however since Monday’s initial move stocks have really struggled for direction, while the FTSE 100 has struggled.
The underperforming FTSE100 has not only had a disappointing week, it’s also had a disappointing month, giving up all of its March gains in the process, as a rebound in the pound, weak basic resources, and some weakness in the banks weigh on the index.
While the rebound in the pound has got a good proportion of the blame for the FTSE 100’s weakness this month, it doesn’t tell the whole story and certainly hasn’t translated into the FTSE 250, which is set to close higher for the fifth month in succession, despite an over 5% rise in the value of the pound from its March lows, which suggests the sterling effect is a little overstated. Let’s not forget the pound is only 7% away from 30 year lows against the US dollar, not exactly a big amount.
It’s been a mixed day for the UK banks today with Royal Bank of Scotland (LON:RBS) following in Lloyds' (LON:LLOY) footsteps earlier this week, by reporting better than expected Q1 profits. It is also the first time since Q3 2015 that the bank has managed to return a positive quarterly performance, with the share price moving above its pre Brexit highs, and its highest levels since January 2016 in the process.
Barclays (LON:BARC), on the other hand has seen its share price slide back despite doubling its profits in the first quarter. Weak trading comparatives in its fixed income business relative to its US peers appear to have driven today’s sell off, with the bank reporting a decline in revenue, while its peers reported decent gains.
The company also took a write down on its African business while credit impairment charges also increased, rising 19%. Barclays has been in the headlines recently for all the wrong reasons with CEO Jes Staley under censure from the FCA over his attempts to identify a whistle-blower.
Private health care provider Mediclinic, (LON:MDCM) which had a really strong day yesterday has seen some of those gains slip away on profit taking, as we come to the end of the week and the month.
US
The latest US Q1 GDP numbers posted a rather big miss coming in at 0.7%, well below expectations of 1.2% and the 2.1% seen in Q4. The fall was a direct result of a sharp slide in personal consumption from 3.5% to 0.3%. Other internals were slightly more positive with the employment cost index rising 0.8%, above expectations while the GDP price index also rose by 2.3%.
This prompted the US dollar and yields to pop higher, though quite why these numbers would make it more likely that the Fed would raise rates in June in what could be a stagflationary environment is not immediately apparent.
On the earnings front Exxon Mobil (NYSE:XOM) saw top line profits beat expectations, though revenue did come in slightly short. Overall the numbers were positive as the company focussed on reducing costs.
The NASDAQ has once again turned in more record highs today in the wake of some decent earnings announcement after the closing bell last night.
Amazon (NASDAQ:AMZN) beat expectations after the bell as sales beat expectations and the company turned a profit for the sixth successive quarter, with the share price hitting new record highs.
The tech boom story continued with Google (NASDAQ:GOOGL) as Alphabet (NASDAQ:GOOG) reported a 22% rise in sales despite concerns that revenues might have been hit by the furore surrounding YouTube videos displaying links to extremist content which prompted some major advertisers to pull their content.
FX
The pound has shrugged off today’s slowdown in UK Q1 GDP. While the fall was a little bit steeper on a quarterly basis to 0.3% the annualised number was revised higher from 1.9% to 2.1%. While the decline in output is a little disappointing the March data, which isn’t included in these numbers was better which means the numbers are quite likely to get revised up in the coming weeks.
It is also important to note that the first quarter tends to be a little weaker on a seasonal basis given that consumers tend to pull back at the beginning of a new year, in order to rebuild their finances post-Christmas.
The euro also got a lift after EU core CPI jumped sharply in April from 0.7% to 1.2%, its highest level since July 2013, and less than 24 hours after ECB President Mario Draghi stated that core prices were expected to rise gradually over the medium term. The euro and bund yields jumped sharply in the aftermath of these numbers, with the euro retesting this week’s highs against the US dollar.
If this trend continues expect further splits on the governing council as Northern European members start to peel away from the consensus we saw yesterday, and talk of an ECB taper starts to gain further ground.
Commodities
With oil prices languishing near one month lows it was perhaps inevitable that we’d see a rebound, with reports that Russia had fully complied with OPEC output limits helping support prices, while speculation continues around whether OPEC members will be able to coalesce around an agreement next month to extend the cuts for another 3-6 months. Prices still look as if we’ll see a second successive monthly decline, with the latest US rig count set to see another increase when figures are released later today.
Gold prices have seen a positive month despite the declines seen this week in the wake of the Macron bounce, as well as rising expectations of a US rate rise in June, as investors hedge into the yellow metal at a time when geopolitical concerns in Asia over North Korea continue to rise.
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