market relief

The FTSE 100 is the largest faller of the European markets today due to the rally in the pound. 

Europe

Sterling surged on the back of the announcement that the UK and EU have agreed to a Brexit transition period. The inverse relationship between the pound and the FTSE 100 has set in, and the British equity index is paying the price for its international exposure. European stock markets are also suffering from the anxiety surrounding the possibility of a trade war.

Barclays’ shares are in demand today after an investment company acquired a 5.16% stake in the bank. Sherborne Investors, a turnaround firm, has a history for influencing companies it holds a stake in. Shares in Barclays are up 3.8% on the back of the news. It is a win-win for Barclays’ shareholders, as the position-building will sharpen minds in the Barclays’ boardroom. Sherborne’s interest in the company could also spark other interest. The share price hit its highest level since April last year, and if the bullish moves continue, it could target 225p.

Micro Focus issued a profit warning, and confirmed that CEO, Chris Hsu, will step down from the role. The COO, Stephen Murdoch, will take over as CEO. The company stated that revenue will fall by between 6% and 9%, and that compares with the previous guidance of a fall of between 2% and 4%. The company issued a profit-warning in January, and today’s update rattled investor sentiment. The share price is down 45% – if the negative move continues, it could target 939p.

US

Geopolitical tensions are weighing on US equity markets again. Traders remain apprehensive that the US could go down the route of a trade war with China, and the West’s deteriorating relationship with Russia is also souring investor sentiment. Even though there haven’t been any developments on these fronts, investors can’t be convinced to start buying back into the market.

Facebook shares are in the red today after it was revealed that Cambridge Analytica collected data from 50 million profiles on the social media site. The political analytics company was used by the Trump campaign in the US presidential election. This revelation does not bode well for the social media giant, and the negative publicity is likely to hit its revenue stream. The stock is down 7.5%.

FX

GBP/USD has surged after an agreement was reached between the UK and the EU in relation to the Brexit transition period. The transition period will run between late March 2019 and the end of December 2020. This gives breathing space for both sides to work out such details as the Irish border. The pound has been creeping higher over the past two weeks, and it jolted higher on the back of the announcement. This takes away some of the economic uncertainty surrounding Brexit. Should the pound’s positive run continue, it could target $1.4150.

EUR/USD ticked up today on account of the weaker greenback – which came as a result of the surge in the pound. It hasn’t been the most exciting day in terms of economic news from the eurozone. The trade surplus for the region fell from €23.2 in December to €19.9 billion – its lowest since October 2017. The single currency has remained in its upward trend since November.

Commodities

Gold has been helped by the soft US dollar and has gained ground recently. The metal has been losing ground over the past two months and this morning it fell to a level not seen since the beginning of the month. The markets are widely expecting an interest-rate hike of 0.25% on Wednesday, but the focus will be on the statement. Jerome Powell, the new head of the Federal Reserve, is unlikely to rock the boat initially, so the language used might be similar to that of his predecessor Janet Yellen.

Brent Crude oil and WTI remain choppy as Russia has pledged to keep its production commitment until the end of 2018. A curtailed oil supply does not necessarily equate to firmer oil prices, as it encourages US shale producers – which has helped US output reach a record high.

It was reported that Azerbaijan is discussing the possibility of becoming an OPEC member. Should this be the case, it would give the cartel even more influence over the oil market.

 

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.