European markets have got off to a slow start to the week with little in the way of positive catalysts, weighing on the DAX and CAC40.
Europe
The FTSE100 is outperforming after the Saudi’s announced a 1m barrel a day cut in their output as they look to try and put a floor underneath the oil price.
Not surprisingly this pushed oil prices higher after the Saudi Arabia oil minister said they would cut their own output from 10m barrels a day to 9m barrels a day from July. This unilateral decision may well suggest that the consensus amongst OPEC+ members is starting to fray amidst concern that the decision will only serve to exacerbate any upcoming economic slowdown.
Natural gas prices are also enjoying a surge on expectations that a big demand rebound is coming from Asia, however given current concerns about China’s economic recovery one must question how this big increase in demand will suddenly materialise.
BP and Shell shares were initial drivers of the FTSE100 rebound early doors, however the slide in oil prices which saw a retreat from their 1-month highs has seen BP and Shell shares give up most of their intraday gains.
BT and Vodafone are seeing a modest rebound, after the over-reaction that saw the shares slide back on reports that Amazon was in talks to offer a mobile phone service to its US Prime customers in a move that if successful might see them try and offer a similar service in Europe.
ASOS shares have shot higher today after it was reported that the company had received a takeover approach from Turkish online retailer Trendyol at the end of last year. It was also reported that the bid was at around 1000p and 1200p a share which is interesting given that the shares traded up to the 1000p level in the aftermath of when the talks were said to have taken place. Since those January peaks the shares have more than halved.
US
It’s been a quiet start to the week for US markets, with the focus on Apple’s share price as it sets a record high above $183, and the start of the Worldwide Developer’s Conference where it is widely expected that the tech giant will unveil a range of new product upgrades as well as a new virtual reality headset.
The S&P500 has continued to edge higher hitting a 9-month high and rallying more than 20% from its October lows, with the next target the 4,300 level and then the August peaks at 4,325.
While the S&P500 has gone from strength to strength, along with the Nasdaq 100, its noteworthy that the Russell 2000 has slipped back sharply on the back of today’s weaker than expected economic numbers, although it was a sizeable outperformer on Friday on the back of the payroll’s numbers.
FX
The US dollar had been trending higher for most of today until the latest ISM services report for May hit the wires at 3pm. If Friday’s payrolls report was good, this was the opposite, with little in today’s report to support what we saw in the May payrolls numbers.
The headline number fell to 50.3 and a 6-month low, while the employment component slipped into contraction at 49.8, pulling yields off their highs and sharply lower. If Friday was an indicator that we might see the Fed go for another rate hike next week, this had the opposite effect, and could well add to the argument for the Fed to be cautious.
The Australian dollar is holding up well, largely in anticipation that we might see the RBA pull the trigger on another surprise rate hike.
Last month the Australian central bank caught markets on the hop by unexpectedly hiking the cash rate by 25bps to 3.85%. Only days before the RBA had been heavily criticised for being too slow in spotting the inflation surge seen at the end of 2021, and through 2022. This appears to have stung, and the sudden hawkish turn appears to suggest that the criticism has hit home, however in being so hawkish there is a risk of a policy mistake if they tighten too hard and unsettle the housing market.
The pound is underperforming despite a resilient services PMI number for May, with the failure to gain a foothold above 1.2500 seeing some profit taking kick in. The resilience of the Uk economy may also be a factor after several UK lenders pulled longer term mortgage deals on the back of the recent rise in gilt yields.
Commodities
Crude oil prices got a decent initial lift from the weekend production cut announcement from Saudi Arabia, hitting one-month highs, but were unable to move beyond the 50-day SMA. This afternoon’s disappointing ISM services report for May and weak factory orders report for April, out of the US has taken some of the steam out of today’s gains, over concerns that the US economy is on the cusp of a summer slowdown.
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