market relief

Stock markets are broadly higher in Europe as some political progress is being made in Italy. 

The cost of borrowing for the Italian government has dropped considerably in the past 48 hours as there is speculation Paolo Savona could become foreign minister in the Five Star Movement and Lega coalition. This has pushed the FTSE MIB higher for the second day in a row. The IBEX 35 is in positive territory even though Prime Minister Rajoy is facing a vote of no confidence, and that could trigger a snap election. The situation in Europe remains tense and investor sentiment could change quickly.

Shares in FirstGroup sold off severely this morning after the company revealed lower-than-expected profits and a shake-up in management. Full-year pre-tax profits fell by 4.8% to £197 million, while the consensus estimate was for £199 million. When you exclude ticket sales from South West Rail, revenue grew by 1%, in line with forecasts. Tim O’Toole has stepped down as CEO, and Wolfhart Hauser, the chairman, will become executive chairman. Matthew Gregory, the CFO, will also become the COO. These changes will stay in effect until a replacement for Mr O’Toole has been secured, and the shake-up in management has rattled investor confidence. The Greyhound service is suffering from staffing issues and increasing competition from airlines. FirstGroup confirmed there will be a review carried out on the Greyhound division. The group foresees ‘broadly stable’ earnings this year, but that hasn’t put traders’ fears at bay.

Premier Oil shares are in demand this morning after it was confirmed the company will be admitted into the FTSE 250 index as of 18 June. Being promoted into the index provides a psychological boost to the company in the eyes of investors, and the stock will be in increased demand from asset managers tracking the index. 

CRH announced plans to merge some of its European and US operations in order to improve margins. The building materials group is aiming to improve its core earnings margin by 300 basis points by 2021. The stock is up 4.8% today.

GBP/USD is higher after the UK announced some broadly positive consumer credit details, and the pullback in the US dollar played a role too. British consumer lending and consumer credit both topped economists’ forecasts. This suggests that demand is strong with consumers, but overreliance on borrowed money can be a hinder an economy.

EUR/USD is taking advantage of the weak US dollar. Eurozone inflation surged from 1.2% to 1.9% this month, which easily topped the 1.6% that economists were expecting. Even the core inflation figure saw an improvement on the month, and this points to firmer demand.

At 1.30pm (UK time) the US core PCE report is released and the consensus estimate is 1.8%, which would be a slight decline from last year’s 1.9%.

We are expecting the Dow Jones to open up 13 points at 24,680 and we are calling the S&P 500 up 1 point at 2725.
 

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