European markets have underperformed today with the FTSE100 slipping back after the latest Chinese factory gate inflation numbers came in hotter than expected, increasing concerns that certain parts of the market are becoming complacent about rising inflation risks.
The DAX was also lower after the latest German trade data for April showed that imports and exports both came in lower than expected. Exports rose 0.3%, below expectations of 0.5%, and imports declined 1.7% indicating weak domestic demand as well. With uncertainty ahead of tomorrow’s ECB rate meeting investors appear to be keeping their powder dry ahead of tomorrow’s press conference and the May CPI numbers from the US.
The main drag has been basic resources which are lower on the back of weaker commodity prices, with Thungela Resources continuing its schizophrenic performance this week with another sharp fall. Anglo American shares are also lower, as is Antofagasta.
Zara owner Inditex has seen its shares rise to a fifteen-month high after Q1 sales beat expectations, coming in at €4.9bn, helped by a 67% increase in online sales. Margins also improved, reaching 59.9% while net income came in at €421m. At the end of Q1, the period ending 30th April, 84% of stores were open.
On the plus side travel stocks are higher with IAG amongst the best performers, along with gains for the likes of easyJet, despite the Competition and Markets Authority launching an inquiry into the treatment of customers of British Airways and Ryanair over their failure to offer refunds to passengers who were prevented from taking flights under lockdown rules. This seems rather selective on the part of the CMA given that they weren’t alone in acting like this. Both Ryanair and BA both stated that they had acted legally in response to any customer claims in this regard. Investors appear to be reacting to the US easing travel warnings to the likes of Germany and France, offering a glimpse of a way out of the current uncertainty over whether people can start flying again. The ratification of vaccine certificates by the European parliament could also have acted as a positive catalyst for the sector, with holders of such a certificate being able to fly without restrictions and quarantine. While this might be welcome, there is no guarantee that individual countries will respect them, given the fragmented response to the pandemic by various European countries.
AstraZeneca, Smith and Nephew and Glaxo are also higher, as the more defensive sector of health care outperforms, while the slightly weaker pound is helping to underpin the US dollar earners in the index.
US markets opened modestly higher this afternoon, with the lack of volatility in the major benchmarks being outweighed with continued interest in the so-called meme stock trade, only this time the main area of interest has been in Clover Health Investments and ContextLogic, both of which opened over 20% higher, before getting slapped back down.
Both of these companies have seen their share prices surge in recent days, with ContextLogic in particular seeing decent gains, having spent the last few weeks trading well below its $24 IPO price. ContextLogic runs the e-commerce site Wish which is an online marketplace bringing together buyers and sellers from all over the world. There have been problems reported with counterfeit products, according to consumer magazine Which, along with items that would be illegal to sell in the UK because they don’t conform to safety standards.
Electric vehicle maker Lordstown Motors has continued to get slammed after reporting that it might not be able to continue trading, as it didn’t have enough funding to launch its new electric pick-up truck, Endurance.
Unlike yesterday the Russell 2000 is underperforming, slipping back in early trade as we start to see some profit taking on some of this week’s meme trades. The Dow and S&P500 are slightly higher with the S&P500 once again looking to close back in on its record high of last month.
US and Global Markets seem to be stalling this week with a market “super thursday” ahead US CPI will be the main focus even though we have ECB interest rates. Tension continues to build in anticipation of a positive CPI figure which many believe could push the federal reserve to taper bond buying.
FX markets have been fairly subdued again today with the Canadian dollar amongst the best performers after the Bank of Canada left rates unchanged.
The pound is the worst performer on a quiet day, weighed down somewhat by some of the hot air coming from the EU about imposing tariffs on the UK if it fails to implement in full the Brexit agreement over Northern Ireland. The reality is that the pound is range trading after failing to move above 1.4200 earlier this week and continues to look well supported above the 1.4000 area. We did see a brief lift from comments this morning from outgoing Chief economist of the Bank of England Andy Haldane, saying the UK economy was going “gang busters” and that monetary support might need to be reined back in the coming months. Unfortunately while what he says is entirely sensible there isn’t much likelihood of the existing members of the MPC following this train of thought in the short term given their sheep like mentality. Lack of certainty can certainly be seen as many fx pairs consolidate and moves are slowing down since the beginning of the week. Could it be the calm before the storm?
US crude oil inventories declined by 5.24m barrels this afternoon helping to underpin further gains for Brent which is now trading back at two-year highs above $72.50 opening up the prospect of further gains towards $80 a barrel. US crude oil prices are also back above $70 hitting their highest levels since October 2018. Recent developments have done little to change our yearly outlook provided in March of $75-$80 a barrel max at year end.
The weaker US dollar and lower yields doesn’t appear to be helping gold prices which are struggling to move back towards the $1,900 level, though that could merely be an abundance of caution ahead of tomorrow’s US CPI numbers, with a strong number potentially giving both the US dollar as well as yields a big uplift.
Will wee higher prices on gold or has the safe-haven demand seen its peak?
SOURCES: FXSTREET and LOTUS ACADEMY