Equity markets have continued their rebound this morning as the post Brexit blues continue to subside and the turbulent waters of recent days seem a little bit calmer.
We’ve seen the FTSE100 return to levels last seen a week ago, however European markets, as well as the FTSE 250, still remain below their pre Brexit rally rebound peaks. A decline in Spanish and Italian bond yields has also seen southern European indices build on their gains of yesterday as they look to rebound from their huge losses at the end of last week.
Today’s gains have been much broader based with oil and gas stocks, house builders as well as financials leading the gainers this morning, though travel stocks have remained under pressure over concerns that a weaker pound could deter UK consumers from going abroad. The worst performers have been Tui (LON:TUIT) Travel and British Airways owner International Consolidated Airlines (LON:ICAG).
House builder Persimmon (LON:PSN) is leading the way while banks have managed to shrug off the Moody’s downgrade which was inevitable in the wake of the sovereign downgrade seen earlier this week.
The rebound in the US dollar seen in the wake of last week’s Brexit vote also appears to have lost its legs helped in some part by the prospect that the US Federal Reserve is unlikely to look at raising rates any time soon, which in turn has helped this shift in sentiment.
The broader decline in long term German and UK 10 year yields speaks to expectations that we could well see a much weaker growth outlook into the end of the year as expectations about future central bank policy point to lower rates for longer to compensate, with the total sum of negative yielding bonds now approaching $11trn.
This morning’s UK lending data continue to point to no evidence of a slowdown in consumer credit in May, though think it’s safer to wait until we see the June data before drawing too many conclusions about the outlook from here on in.
US markets look set to open higher again this morning despite posting their best one day performance since early March as the current rally continues to build some short term momentum.
With US bond markets fairly ambivalent about the timing of a US rate rise, the latest US economic data will be closely watched, particularly in respect to a rebound in personal spending which saw a massive jump in the April numbers by 1%. Whether this can be sustained into May is questionable but a decent gain could well be instructive with respect to a decent recovery in Q2 after a fairly weak Q1.
The latest PCE inflation numbers are also expected to be closely scrutinised in light of concerns that inflationary pressures are picking up on the US. This is expected to show that May core PCE remains steady at 1.6%, with a 0.2% rise month on month.
The Dow Jones is expected to open 64 points higher at 17,473
The S&P500 is expected to open 9 points higher at 2,045
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