The FTSE was performing better than its European counterparts in a rather dull start to the week, mainly thanks to a weaker pound. Whilst oil majors helped the FTSE higher in early trade as they traced the oil’s price northwards, oil’s strength was short lived. With a notable lack of drivers, after last week’s busy calendar, investors are awaiting fresh catalysts.
China is closed this week for stat of the year of the Pig, so US earnings could attract more attention in an attempt to fill the void.
Oil pares gains
Oil failed on hold onto its recent rally, which saw it reach a two-month high in early trade. US sanctions on Venezuelan petroleum industry and OPEC supply cuts kicking in overshadowed concerns of economic slowdown and reduced demand. A drop in the number of US oil rigs to the lowest in 8 months also lent support. However, by the afternoon demand concerns and a stronger dollar sent oil 1.2% lower.
US earning season not as bad as feared (so far)
With Google (NASDAQ:GOOGL) due after the closing bell and other big names such as Disney (NYSE:DIS), General Motors (NYSE:GM) and Kellogg (NYSE:K) all set to release their numbers this week, the focus will remain on earnings.
So far just shy of 50% of S&P 500 firms have reported. According to FactSet 68.5% have topped expectations. This is what we would expect to see in an average quarter. It is clearly lower than what we have seen over the past three quarters, but they weren’t average.
The worst fears have not come true, earnings have held up better than what most were expecting and as a result the US markets have rallied across the season. Whether the move higher can be sustained depends largely on whether earnings continue to come through slightly above par and whether sentiment holds as the US - Sino trade truce nears.
Pound to $1.30 as Brexit hits the economy?
The pound traded lower after data showed that activity in the construction sector almost ground to a halt in January. The construction PMI dropped to 50.6, its weakest level in 10 months. This was down from 52.8 in December and well short of analyst’s expectations.
There is a growing list of evidence of Brexit uncertainties hampering progress and dampening confidence across the economy. Nissan’s decision to dump Britain in favour of Japan for the latest X-Trail model, UK manufacturing and construction sectors nearing stagnation are just the latest.
The negative impacts of Brexit are becoming increasingly noticeable as we move towards 29th March with no deal in place. There is a clear feeling that the UK economy is slowing as Theresa May continues to go in circles with Brexit. Investors will now look towards the dominant service sector data tomorrow. Another surprise to the downside could see the pound slip below $1.30.
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