market relief

European markets have seen a welcome return to positive territory on Friday morning. It’s a dead cat bounce led by basic resource, oil and financial sectors which have seen the most punishment this week. It’s not to say today’s move higher can’t be sustained, it’s well overdue, but for now the groundwork it’s built on is a little shaky.

The catalyst for the move higher in the energy sector has been jump in the price of oil overnight when rumours surfaced that OPEC was ready to discuss a production cut. An output cut would almost certainly be a game-changer for short term oil prices. The reason it remains unlikely is that the resulting higher prices would encourage more shale oil production which could eventually add to the supply glut and bring prices back down.

Financial stocks are pushing higher with shares of Standard Chartered gaining as much as 7%. The sentiment shift was kick-started by JP Morgan chief executive Jamie Dimon going “all-in” on the banking sector by buying $26m worth of his own bank’s shares.

Rolls Royce is on a roll at the top of the FTSE 100 after slashing its dividend by a half in response to lower profits. The divi cut is a necessary evil for the long term health of the company. It is being seen by shareholders as more favourable than shares getting diluted even more with a rights issue.

After soaring the most since the 2008 financial crises to a one-year high, gold is seeing a pullback on profit taking. Yesterday’s move in gold was extreme and may have marked a short term blow-off top. Though sentiment appears to have materially shifted away from what was a consensus belief for a fall below $1000 per oz.

The euro has traded lower after German GDP data that met expectations set up for what will likely be the first quarterly slowdown in annual growth since the second quarter of 2014. Weaker European growth will likely add to calls for further easing from the European Central Bank.

US stocks look set for a higher start, in line with risk-on sentiment in Europe and supported by the rebound in the price of oil ahead of the release of retail sales data.

 

USA pre-opening levels

S&P 500: 13 points higher at 1,842

Dow Jones: 99 points higher at 15,759

Nasdaq 100: 32 points higher at 3,994

 

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