market relief

European equity markets are higher this afternoon as the bullish sentiment in Europe continues. 

Europe

The FTSE 100 and DAX have been broadly pushing higher in recent weeks, and that trend is playing out again today. The dip in the euro and the pound on account of the firmer US dollar is adding to the upward move.

International Airlines Group (IAG) shares are in demand today after the company posted impressive first-quarter results, after revenue jumped by 2.1% and operating profit rose by 75%. Even though there is tough competition in the airline market, the group still managed to boost passenger numbers by 3.4%. The company is still ‘considering its options’ regarding the potential takeover of Norwegian Airlines. Shares in IAG are near their all-time high of 680p, and if that level is taken out, it could target 700p.

HSBC shares are down 2.1% after the bank announced much weaker-than-expected profits. In the first-quarter, earnings fell by 4% to $4.76 billion, while analysts were expecting $5.76 billion. Revenues grew by 6%, but costs jumped by 13%, and that led to a decline in earnings. The rise in overheads was largely down to increased investment in the British and Chinese retail banking sectors. The bank earns 75% of its revenue in the Far East, and it still intends to focus on its ‘pivot’ to Asia as China has the potential to overtake the US in economic terms. HSBC promised a share buyback scheme of up to $2 billion, but the capital structure of the bank still remains strong. Expectations were high going into the results today, but the fundamental business is still solid.

RBS raised its price target for Dixons Carphone to 230p, up from 210p. The stock is up 5.5% today at 215p. The share price suffered greatly at the back end of last year as it warned on profits. In January, the company stated that third-quarter revenue rose by 6% as it enjoyed a strong Christmas period. The retailer upped its full-year guidance and that has helped the stock recover some of the ground it lost near the end of 2017. The stock hit is highest level since August, and if the positive run continues it could target 254p.

US

US markets are mixed after the latest non-farm payrolls report. The closely watched update from the US was broadly weaker than expected, but dealers don’t seem to be fazed by the report. 

The headline non-farms figure came in at 164,000, while the consensus was for 192,000. The March report was revised higher from 103,000 to 135,000, and the unemployment rate fell to 3.9%.These number weren’t amazing, but the US jobs market is healthy. The earnings figures were a little disappointing however. Average earnings on a monthly basis and yearly basis came in at 0.1% and 2.6%, while economists were expecting 0.2% and 2.7% respectively. March earnings were revised lower too. Earnings data has become more important recently, and today’s numbers point to a plateauing in the US economy.

During the week, the Federal Reserve weren’t overall bullish on the US economy. Traders are still confident the Fed will hike interest rates next month, but how many more rate raises beyond then now seems less clear.

FX

The US dollar index initially lost ground after the US jobs report was released, but then bounced back and has now hit a fresh high for 2018. It is remarkable the US dollar is continuing its positive run in spite of the not-so-hot jobs report.

EUR/USD has been hit by the rally in the US dollar, and the underwhelming services data from some major eurozone countries had set the tone for the session. Germany, Spain and Italy all posted services figures that missed expectations, growing at a slower pace on the month. The European Central Bank president, Mario Draghi, warned the region was going through an economic soft patch, and these service reports confirm it.

GBP/USD is at the mercy of the firmer US dollar, and the move has been exacerbated by the lack of economic indicators from the UK today. Traders aren’t holding out much hope for an interest-rate rise from the Bank of England next month, and the jump in the greenback is adding to sterling’s woes. GBP/USD is near the 200-day moving average at 1.3512, and a break below it could put 1.3300 on the radar.

Commodities

Gold is a touch lower today, but when you consider the US dollar index has reached a new 2018 high, the upward move isn’t that much. Lately the inverse relationship between the US dollar and the greenback has been strong, except today. If gold breaks below $1,300, it could pave the way for further losses.

WTI and Brent Crude oil is largely unchanged on the day as volatility in the energy market remains low. The stronger US dollar hasn’t really impacted the oil market. Russia reaffirmed their commitment to keeping production levels curbed, even they have complied with the pledge in the past two months. Traders are likely to remain nervous about supply levels, as President Trump could impose sanctions on Iran later this month.

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