Stocks Rally As Bond Markets Stabilise

Europe

Equity markets are largely higher today as the fear surrounding Italy has cooled in the wake of the successful government bond auction. The Italian government had to pay higher borrowing costs, but the cover ratio jumped too, which suggests demand is high. In the secondary bond markets, the yields retreated from the multi-year highs that we saw yesterday.

The European Central Bank (ECB) confirmed it does not see any stress in Italian bank deposits or inter-bank rates, and this has steadied investor confidence in the currency bloc.

Shares in Telford Homes (LON:TELF) are in the red, even though the company revealed a solid set of full-year figures. Strong demand in the housing market helped the firm post an 8.3% rise in revenue and a 35% jump in profits. The total divided was upped by 9%. The outlook is rosy as the group confirmed it is on-track to achieve its target of £50 million pre-tax profit next year. The company put more of a focus on the build-to-rent market, as that sector is expanding. The stock price has been broadly moving higher for nearly two years, and if the positive move continues it could target 480p.

Photo-Me (LON:PHTM) shares have slumped after the company announced a profit warning. Before today’s update, equity analysts were forecasting full-year pre-tax profits to be £54.1 million, but today the group confirmed earnings would be at least £44 million. Weaker-than-expected trading at its Japanese division was cited as the reason for the profit warning. The company has plans to conduct major restructuring at its Japanese division in order to turn the unit around. It is worth noting the company now expects profits to be largely unchanged on the year, and given the stock is down 26%, some traders might think the sell-off is over-done.

British supermarkets received a boost from the Royal Wedding, according to Kantar. The research group stated the sector saw an increase in sales of 2.7% in the 12 weeks until 20 May. Morrisons (LON:MRW) saw a 2.9% sales boost, while Sainsbury's (LON:SBRY) posted only 1% growth.

US

US equity markets are in positive territory today as the bullish move in Europe is playing out on the other side of the Atlantic Ocean. Stocks like JPMorgan (NYSE:JPM), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) have bounced back today in light of the more stable financial position in Europe.

The US economy grew by 2.2% on an annual basis in the first quarter, while economists were expecting growth of 2.3%, and keep in mind the economy grew by 2.5% in the same period last year. The cooling of the growth rate could cast doubts on how quickly the Federal Reserve will tighten monetary policy.

The ADP employment report showed that 178,000 new jobs were added this month, which was below the consensus estimate of 190,000. Last month’s report was revised down from 204,000 to 163,000, which is a major adjustment. This will be playing on traders’ minds ahead of Friday’s non-farm payrolls report.

FX

The US dollar index retreated from yesterday’s six-month high as dealers took their profits on the greenback. The softer-than-expected US growth rate and the disappointing ADP report might keep pressure on the US dollar as the prospect of three more rate hikes this year has decreased.

EUR/USD has been boosted by strong German data and the slide in the US dollar. The jobless rate in Germany fell to a record low while inflation jumped to 2.2%, its highest level since February 2017. It is encouraging to see such strong economic indicators from Germany, as some of the reports have pointed to a slip in economic activity.

USD/CAD has sold-off heavily due to the bounce back in the oil market, and the decision by the Bank of Canada to keep rates on hold. The Canadian dollar has been helped by the upward move in the oil market, and the lack of change in monetary policy helped too.

Commodities

Gold is hovering around the $1,300 mark, and the drop in the greenback has done little to boost the gold market. Given the inverse relationship between gold and the US dollar, it is a relatively small upward move in gold. It is possible the recovery in stocks today has put some downward pressure on gold, and this is why the metal is only a little higher on the session.

WTI and Brent Crude have edged up as bargain hunting has set in. The oil market has recovered a little in the wake of the severe sell-off at the back end of last week. There is still talk that Saudi Arabia and Russia will increase supply, but that hasn’t stopped the bulls today.

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