Equity markets have enjoyed a good run today, as the trading relationship between the US and China continues to improve.

Europe

Beijing revealed it will cut the import levy on US cars from 25% to 15%, and this is seen as a positive given the strained relations between the two countries.

The move by the Chinese government has certainly lifted global sentiment: the FTSE 100 hit another record high today, and the DAX reached its highest level since early February, after being closed yesterday for a public holiday.

Shares in Halfords sold off today after the company revealed a fall in profit, and issued a slightly gloomy outlook. Full-year revenue increased by 3.7%, but profit fell by 5%, and the drop in earnings was blamed on adverse currency movements. The retailer of auto parts and bicycles said they don’t expect bike prices to rise this year. The company has benefited greatly from the popularity in cycling in recent years, but customer service will now play a bigger role in revenue generation. Halfords is doing more business away from the high street, evidenced by an 11.8% jump in online sales. The final dividend was increased by 3%, owing to strong cashflow. The stock dropped 11% today after reaching a 17 month-high yesterday, so investors clearly had high hopes.

Marks and Spencer shares are in the red today after the company confirmed plans to close over 100 stores by 2022. The retailer has already shut 22 stores since it introduced its ‘radical transformation’. The company has taken the decision to reduce the amount of floor space dedicated to clothing – which is underperforming. The aggressive plan to close more stores is being seen as a sign of how difficult trading is. The firm will release its full-year figures tomorrow, and the consensus estimate is for a pre-tax profit of £573 million, compared with £614 million last year.

Galliford Try confirmed it is on track to achieve its full-year target. CEO Peter Truscott announced that all three divisions of the group are on track to deliver growth this year. Net debt has declined, and the firm predicts exceptional charges of £25 million – which is below the previous forecast. The share price is down 0.1% today. 

US

US equity benchmarks are mixed even though trade talks between the US and China are picking up. The decision by China to cut the levies on US car imports has helped Ford and General Motors, but importantly, it shows that Beijing is willing to play ball.

The US Richmond manufacturing index soared to 16 in May from -3 in April. Economists were expecting a reading of 9. The solid manufacturing report underlines the strength of the US economy. Some traders predict the Federal Reserve will raise rates three more times in 2018, and economic announcements like this reinforce their beliefs. 

FX

GBP/USD enjoyed a volatile session as contrasting comments from Bank of England (BoE) members pushed the pound around. Gertjan Vlieghe announced that rates could be hiked up to six times in three years, while sent sterling higher. On the other hand, Governor Mark Carney blamed ‘temporary idiosyncratic factors’ for the cooling of the economy. Sterling is still up on the session, but that is partially down to a dip in the US dollar.

EUR/USD is a touch higher today as short covering kicks in. There were no major economic announcements from the eurozone today. The single currency has been in a steady downtrend versus the US dollar in the past month, but sellers have taken a breather today. The eurozone manufacturing and services reports are due out tomorrow, and they will give us an idea of how the region is performing.

Commodities

Gold is largely unchanged today on account of the cooling of the US dollar. The metal has bounced off the lows of the week, but remains in the downtrend that begun two months ago. A move back above $1307 – the 200-day moving average – might begin to negate the recent negative move.

WTI and Brent crude oil pricescontinue to be strong, as concerns about supply from Venezuela and Iran play on traders’ minds. WTI hit a new 42-month high, while Brent crude is also close to testing its recent high. The oil market has been in a firm upward trend for 11 months, and given the state of geopolitics, fears about supply levels could persist.

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.