The materials sector in London is keeping the FTSE 100 in positive territory as mining stocks bounce back from yesterday’s decline.

Europe

The softer euro is assisting equity markets such as the DAX and CAC 40. The FTSEMIB is under pressure, however, as political uncertainty in Italy weighs on sentiment.

Paddy Power Betfair is in talks to acquire FanDuel in the US. A change in US laws in relation to gambling has brought about this possible takeover. Should the deal go ahead, it would beef up Paddy Power Betfair’s US division, and in turn FanDuel would gain access to the risk and trading expertise of the Dublin-based bookmaker. Gambling regulations in the UK and Australia are becoming tighter, and this move would give the London-listed firm more exposure to the US.

Micro Focus impressed investors today by announcing that its full-year revenue will be at the better end of the previous downbeat estimate. The company predicted a fall of between 9% and 12% in annual revenue in March. This morning Micro Focus confirmed the decline in revenue will be close to a 9% drop, and traders welcomed this. The firm also revealed it has won a $40 million contract, and this added to the bullish sentiment. Today’s upward move must be put in context of the severe sell-off in March, on the back of the revenue warning. The stock is up 5% today, but is still down 45% year-to-date.

Mondi shares are in demand after it posted a 15% rise in first-quarter operating profit. The company revealed that higher selling prices and initiatives to increase profit more than offset higher expenses, and reiterated its positive outlook. The share price took a knock in October 2017, when the firm issued a profit warning, but the confirmation of a special dividend in March, and the optimistic outlook today is reassuring investors. The stock has been in an upward trend since December 2017, and if the upward move continues it might target 2,200p.  

US

US markets have bounced back from the sell-off yesterday as US government bond yields cooled a little. Traders are getting used to the idea of the US 10-year yield being comfortably above the 3% mark. The possibility of tighter monetary policy from the Federal Reserve this year is the driving force behind the rally in US government bond yields. Higher yields on government bonds could tempt traders to withdraw funds from equities and invest in government bonds.

The US economy continues to tick along nicely. Industrial production grew by 0.7% in April, while economists were expecting 0.6% growth. Building permits last month were in line with forecasts, while housing starts cooled. These figures point to a firmer US economy, although some dealers would suggest it does not warrant three further interest-rate hikes this year.

FX

The US dollar index continues to push ahead and has hit a level not seen since December 2017. The rise in US government bond yields is driving the greenback upward, based on the perception that the Fed will increase rates three more times in 2018.

EUR/USD has dropped to a five-month low on account of the slide in eurozone inflation and the jump in the greenback. The CPI rate in the eurozone fell from 1.3% to 1.2%, in line with expectations. The drop in the cost of living points to weakening demand, and this may prompt the European Central Bank to keep monetary policy loose.

GBP/USD is also suffering at the hands of the firmer US dollar too. The currency pair experienced low volatility today as there were no major economic announcements from the UK. If the pound can hold above the 1.3450 region it could stage a bounceback.

Commodities

Gold has printed a fresh five-month low due to the rally in the US dollar, as the inverse relationship between the two markets remains strong. The prospect of additional rate rises in 2018 is also putting pressure on the metal. While gold is below its 200-day moving average at $1,306, its outlook is likely to remain negative. 

WTI and Brent Crude oil saw a jump in volatility when the Energy Information Administration released the latest US oil and gasoline inventory figures. US oil stockpiles fell by 1.4 million barrels, and the consensus estimate was for a drop of 2 million barrels. Gasoline stockpiles fell by 3.79 million barrels, and traders had predicted a drop of 1.43 million barrels. The oil market remains in its solid upward trend, and pullbacks might entice some buyers.   

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