The FTSE 100 has begun the week on the front foot as the benchmark seeks to recover some of last week’s sizable losses. The blue-chip index is higher by 40 points at the time of writing after last week it fell to its lowest level since May. The pound is little changed on balance, with the currency also seeking to recoup some recent declines.
Risk-assets attempt a comeback
Last week’s trade was dominated by the escalation of tensions between Washington and Pyongyang as inflammatory remarks from leaders on both sides of the Pacific increased the likelihood of conflict. The threatening rhetoric was keenly felt in markets around the globe as billions were wiped off equities and safe-haven assets such as Gold and the Japanese Yen saw a surge in demand. This morning there’s been an unwinding of these moves to some extent, with Gold futures lower by around $10 and the Yen the worst performing off all major currencies. There’s a swathe of green across European equities with gains in excess of 1% seen for the leading benchmarks in Frankfurt and Paris and shares in London aren’t far behind.
Is the pullback over?
Whilst the selling seen in stocks in the past weekwas widely attributed to the US-N.Korea story there has in fact been a fairly prolonged period of declines for European indices. The Eurostoxx for instance made a 2017 peak back in May and has since fallen by more than 7% to last week’s low. The market now trades back at a similar level to where it was prior to the 1st round of the French election, after which Macron’s progression sparked a strong move to the upside as the seeming avoidance of a populist party gaining power sparked a sharp rally in stocks. Whilst it is tempting to feel that the current weakness will now cease as the prospect of a nuclear war seemingly recedes, there were other factors weighing on the Eurostoxx - such as the local currency appreciation - that will likely persist.
Stocks sit close to key technical level
From a technical point of view there has been substantial damage inflicted on the uptrend seen in recent months and should last week’s lows be breached then another leg lower would threaten the 200 day SMA (simple moving average) for the Eurostoxx and the FTSE. A move below here would leave bulls with scant reason from a technical standpoint to argue that an uptrend for these markets remains intact.
Financials lead the risers
Several of the best performing stocks on the FTSE this morning come from the financial sector with Standard Chartered (LON:STAN) higher by more than 3% whilst Old Mutual and RSA insurance are also sitting on notable gains. Another area that is predominantly green is the Miners with Glencore (LON:GLEN), Antofagasta (LON:ANTO) Holdings and BHP Billiton (LON:BLT) all occupying spots in the top ten of the FTSE leaderboard. The rise here is somewhat surprising given the latest data from the Far East, with a marked slowdown seen in the Chinese industrial production figures released overnight. A year-on-year rise of 6.4% is the weakest reading for this monthly data point since March and makes the previous increase of 7.6% seem even more of an outlier from the prevailing average. As for stocks that are trading lower in London this morning, Standard Life (LON:SLA) is the standout loser shedding around 3%. The investment company has formally announced the completion of its £11 bn merger with Aberdeen Asset Management with the combined entity now being the second-biggest fund manager in Europe.