Europe
In the wake of last night’s rather surreal Trump press conference, European markets have slipped back with the FTSE100 flirting with the prospect that we could see a break in its record breaking winning streak, while the DAX and CAC40 have also slid back as both the euro and the pound rebound from recent lows.
One of the main drags has been weakness in the health care sector driven by last night’s comments by US President elect Donald Trump with respect to their pricing policies.
His remarks that the companies had been getting away with murder with respect to pricing at a time when drugs prices have been rising is likely to raise concerns that he may take steps to curb these companies’ ability to charge the prices they want to. Shire Pharmaceuticals and Hikma are down near the bottom of the index.
Less than 12 hours after the Bank of England expressed concerns about the rise in consumer credit we’ve seen a host of Britain’s biggest retailers deliver what are by and large some fairly decent trading numbers.
Thus far this week we’ve seen a very decent performance from the retail sector, supermarkets in particular and today has been no different with Tesco (LON:TSCO) reporting results in line with expectations, which resulted in a bit of a sell-off initially but only because the share price had been rising all week.
Marks and Spencer (LON:MKS), it would appear, is finally starting to show signs of a turnaround with a much better than expected rise in its clothing sales, while total sales rose 3.1% over the quarter. The food division also showed some decent growth of 1.3% in stores open more than a year.
Primark and Debenhams also reported fairly decent performances over the Christmas trading period, with Primark showing an increase in sales, though that hasn’t stopped its shares in the parent company Associated British Foods (LON:ABF) falling sharply, while Debenhams saw its sales boosted by a focus on beauty products and also seeing an improvement in its on-line business.
Basic resource stocks have continued their recent resilience with another positive day driven by strength in commodity prices with gold prices jumping to their highest levels since November, above $1,200 an ounce. Firmer copper and iron ore prices have also helped pushing Rio Tinto (LON:RIO), Fresnillo (LON:FRES) and Randgold Resources (LON:RRS) to the top of the FTSE100.
US
Even though US markets managed to stage a late rebound last night they’ve opened lower this morning as investors digest the fact that the new President elect’s propensity to shoot from the hip is likely to introduce a significant uncertain political element to the overall investment environment.
Investors don’t appear to have factored this into their investment scenarios given the gains seen since November 8th and last night’s events may well be the wakeup call many of them needed to start doing so. The Trump Presidency is unlikely to be a one way bet for stock markets.
Not unexpectedly health care stocks have come under some further pressure in early trade with Pfizer (NYSE:PFE), Allergan and Johnson and Johnson all slipping back.
Continuing on the pharmaceutical theme it has been reported that Johnson and Johnson and Actelion have approached Swiss officials about the structure of the proposed takeover deal.
Amazon (NASDAQ:AMZN) is also in focus after reporting that it would create more than 100k full time jobs in the US by 2018.
FX
The US dollar has continued its decline in the wake of last night’s Donald Trump’s press conference, sliding across the board with the Japanese yen being the biggest gainer, as US yields slip back to their lowest levels in several weeks, with US 2 year yields falling to their lowest level since the Fed hiked rates in December.
The lack of detail on what the new administration’s new tax and fiscal policy appears to have prompted some significant profit taking on recent attempts to take the US dollar higher. The falls seen overnight could well also signal further declines given that they will make the fiscal outlook much more uncertain in the short term, which in term may well stay the Federal Reserve’s hand when it comes to raising rates.
US policymakers have already cited a high degree of uncertainty around the new administrations fiscal policy, and last night’s events are unlikely to have assuaged those concerns. It will be interesting to see if Fed chief acknowledges those concerns in a speech she is due to give later this evening.
The latest ECB minutes pointed to growing divisions amongst governing council members about policy, as well as the outlook for inflation, despite last month’s decision to increase the level and duration of QE.
These divisions are likely to have grown in recent weeks particularly since inflation has increased substantially in some of the recent data since that meeting. This has helped push the euro up towards its highest levels in over a month against the US dollar, as traders price out the prospect of further policy changes from the ECB this year.
Commodities
A weaker US dollar has helped underpin commodity prices across the board with gold, silver and copper prices all pushing to multi week highs.
Oil prices have also continued their recent rebound, mostly due to the slightly weaker US dollar, but also on a drop in Saudi output to below 10m barrels a day, below its targeted OPEC level.
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