UK and Europe
Concerns that slowing global growth could derail a nascent return in investor confidence saw stock markets head lower again on Tuesday, taking the FTSE 100 to two-week lows.
A $44bn lawsuit against BHP Billiton (LON:BLT), a slowdown in construction activity in April and poorly-received earnings from Royal Dutch Shell (LON:RDSa) and Sainsbury’s (LON:SBRY) put the FTSE 100 under pressure. A strong rebound in Next (LON:NXT) shares following a weak initial reaction to earnings did little to buoy overall sentiment.
Mining stocks continue to lead declines amid falling commodities which are still bearing the brunt of weak economic data from China.
Stock markets have been falling in the past few days amid mixed corporate earnings but a return of US dollar strength in the past two days, if sustained, could add to downside risks. Yesterday’s dollar strength is lagging the weakness in oil and commodity currencies which topped out last week.
Shares of Royal Dutch Shell have fallen after it reported another huge quarterly decline in profits including a $1.4bn loss in its exploration and production business. Adjusted net income was ahead of expectations thanks to a bigger return in refining and trading as well as effective cost-cutting. Shell’s biggest risk is also its biggest opportunity; a dividend yield of 7% thanks to its higher debt burden following the BG merger.
Shares of Sainsbury’s sunk after the supermarket posted a 14% decline in profits, warned of a competitive market for the foreseeable future and lowered its final dividend.
Next shares did a full-180 degree turn; initially dropping after the company cut guidance but then rallying to the top of the FTSE 100 after its Chief Executive Lord Wolfson appeared to waiver on the forecast. Lord Wolfson had previously suggested there was a cyclical shift away from spending on clothing towards travel and leisure but conceded the weak recent results could just be weather-related.
US
US stocks opened lower amid weak international sentiment but pulled off the lows as sentiment improved after better than expected corporate earnings as well as durable goods and service-sector data.
Priceline (NASDAQ:PCLN) shares dropped sharply after the travel booking website beat top and bottom line revenues but guided lower for the second quarter.
Time Warner (NYSE:TWX) saw shares rise thanks to the popularity of its HBO unit, home of Game of Thrones, which helped the cable company beat earnings estimates for the first quarter.
Shares of Alphabet (NASDAQ:GOOGL) saw modest gains after announcing it had struck a deal with Fiat Chrysler to build self-driving cars.
FX
The US dollar gained strength after durable goods orders and the latest ISM non-manufacturing for April beat expectations, softening concerns over weaker than expected private payrolls data. The latest dataset do still to change the slim-to-none chance of a June rate hike but do allay concerns that manufacturing is leading the US economy off a cliff-edge.
The euro fell mostly as a function of dollar strength but a bigger than forecast decline in Eurozone retail sales and a slight miss on services data added to downside momentum.
The British pound added to yesterday’s sharp drop after the UK construction PMI for April fell from 54.2 to 52.0 when expectations were for a more modest drop to 54.1
Commodities
Crude oil has held its ground in the last twenty-four hours despite DOE and API data both showing a bigger than expected rise in weekly oil inventories. DOE inventories rose to 2.78m from 1.9m last week. API inventories saw a bigger than expected build of 1.3m barrels last week but markets reacted to the lower than expected Cushing build of 382k barrels sending oil prices higher.
Gold and silver prices shifted between gains and losses as the US dollar advanced but stock markets fell to two-week lows generating demand for safe-havens.
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