Politics has played a big role in today’s positive move in European stocks. 

Europe

In Italy there was a political compromise that lead to the formation of a coalition government between the Five Star Movement and the League Party. Traders have reacted well to the news, but as their anti-establish rhetoric hasn’t faded, the new government might be a headache for investors down the line.

The Spanish market has been pushing higher since it was revealed that Pedro Sanchez will take over from Mariano Rajoy as prime minister. This will avoid a snap general election and it has lifted investor confidence. 

Dignity has come under pressure today after the government stated it was going to look into how the funeral services sector is run. Westminster announced they were ‘appalled’ at some of the practices in the industry. The Competition and Markets Authority (CMA) are also conducting their own investigation into the rules of the business. The investigation will look at how the price structure has changed over the years, and ensure it is simpler for customers to select a service that suits their needs. The share price has been in a downtrend since October 2016, and if the bearish move continues it could target 900p.

Shares in Barratt Developments are higher today after JPMorgan raised their outlook on the company from neutral to overweight. The stock price has been drifting lower since October and the cooling of UK house price growth might weigh on the company.

Dealers in Europe seem to be unfazed by the US’s decision to impose tariffs on steel and aluminium from the EU. Brussels are unhappy with the move, and this has the potential to spark a trade war.

US

The latest non-farm payrolls report was largely positive. 223,000 jobs were added in May, which easily exceeded the 188,000 that economists were expecting. The April figures was revised down to 159,000 from 164,000. Remarkably, the unemployment rate dropped from 3.9% to 3.8% - its lowest level since early 2000. The yearly average earnings figure ticked up to 2.7%, meeting forecasts. Overall it was a respectable set of results. Traders are widely expecting an interest rate hike from the Federal Reserve this month, but beyond that dealers are divided over how quickly the US central bank will tighten their monetary policy.

President Trump has put the pressure on Mexico, Canada and the EU by imposing tariffs on aluminium imports. Some form of retaliation is expected from the respective countries, and if this escalates it could bring about a trade war. Mr Trumps talks and acts tough, but he is also likely to compromise if the deal is right.  

FX

The US dollar index initially jumped after the US jobs report was released, and after a small breather, the greenback continued pushing higher. The non-farm payrolls figure points to further monetary tightening from the Fed.

EUR/USD is in the red after the eurozone posted largely underwhelming manufacturing data. The firmer greenback added to the euro’s woes. The manufacturing PMI reports from France, Italy and Spain all fell short of economists’ estimates. It seems the currency bloc is still going through an economic soft patch.

GBP/USD took a small knock in the wake of the US jobs report, but it reassumed the upward move that begun in the morning. The UK manufacturing sector grew at a quicker rate in May, and topped estimates. Sterling has yet to break out of the downtrend it has been in since mid-April.  

Commodities

Gold is a touch lower in the wake of the US jobs report. Dealers are expecting a rate hike from the US central bank later this month, and we could see the pressure remain on the metal until the Fed meeting in the middle of the month. If gold breaks above its 200-day moving average at $1,307, it could signal the end of the recent bearish move.

WTI and Brent Crude have been hit by profit-taking after OPEC yesterday confirmed that production fell to a 13-month low. Traders are still cautious the oil cartel might seek to increase production when they meet later this month. The energy market has enjoyed a great run in 2018, and the chatter about Russia and Saudi Arabia increasing output has prompted some profit-taking. 

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