Markets in Europe have built on last week's strong gains after this morning’s Chinese trade data saw exports rise to a five-month high. While some of this jump may well be as a result of a rebound after Chinese New Year, it also suggests that despite concerns about an economic slowdown, external demand in the global economy, while weaker than a year ago, still remains sufficient to sustain further economic expansion. 

Europe

The gains in Europe have been led by the FTSEMib, and the DAX, which have both hit fresh six month highs, while the FTSE 100 has lagged behind, though the oil and gas sector has helped reduce some of the lag.

The FTSE 250 on the other hand also hit a fresh 6 month high, above 19,700 led by Games Workshop, a maker of toy miniature soldiers, after the company reported that it expected pre-tax profits to rise 7% to £80m as it reported sales and profits ahead of expectations after its January update.

Indivior shares have also recovered some of the lost ground after the shares dropped 70% earlier this week after the company was indicted by a US Federal Jury for fraudulent misrepresentation with respect to its Suboxone Film opioid treatment.

Pet supplies retailer Pets at Home shares had a hangdog look, sliding sharply after the Canada Pension Investment Board sold off its entire stake in the business for 148p a share.

US

US markets opened sharply higher today as both JP Morgan Chase and Wells Fargo both beat earnings expectations for the first quarter, with the S&P 500 moving back above 2,900 and into touching distance of its record peaks, as M&A activity also drove a big rise in risk appetite.

Despite lowered expectations JP Morgan Chase still managed to post its best ever quarter for profits and revenues, posting profits of $9.18bn on revenues of nearly $30bn. The bank doesn’t appear to be suffering unduly from the flattening of the yield curve that has taken place over the last three months. On the investment banking side of the business the picture isn’t so positive with trading revenue dropping 17% as low volatility weighed on activity.

Wells Fargo also beat expectations posting better than expected numbers on the back of a recovery in consumer lending notably in auto loans. However the banks non-performing loans also increased, rising to $7.3bn which could be an arbiter of trouble further down the line when it comes to the US economy.

In M&A news Anadarko shares have surged after Chevron, the US’s second biggest oil company announced that it would pay up to $50bn for the Permian basin shale company. It also seems a big bet on shale and on oil prices remaining high. President Trump has also made his displeasure clear at higher prices so Chevron could be paying near the top of the market. As such this purchase seems a big ask if you think that renewables are set to comprise an increasing bigger part of the energy mix.

It also flies in the face of European oil majors who have been investing in renewables at a much faster pace. It’s a risky bet for Chevron given that they and Exxon are lagging when it comes to renewables.

Disney shares rallied 11% to a record high after the company announced that it would be rolling out a new streaming service Disney+ on November 12th this year, costing $6.99 a month, in a move that appears designed to deliberately undercut Netflix’s pricing model. The biggest problem Disney will have, in what is becoming an increasingly crowded and fragmented market, is one of limited consumer appetite for multiple subscriptions, however investors don’t appear to be too perturbed by that if today’s price action is any guide.

Netflix shares have slumped over 3% in response to this Disney news as investors gear up ahead of their latest earnings numbers, which are due out next week.

Uber’s latest share prospectus also hit the mat last night and it had some interesting numbers with respect to future profits potential. With Lyft shares already well below their IPO price, and trading below $60, a bet on Uber is likely to require an equally high leap of faith.

In August last year Toyota invested $500m into Uber to help develop self-driving cars, a sum that valued the business at around $72bn. Are we supposed to believe at a time when margins appear to be plateauing, and the S&P500 has traded sideways that Uber is now worth over 30% more than August, at a time when it is still haemorrhaging cash at a rate of $2bn a year, and posted a $3bn loss in 2018?

FX

The US dollar and Japanese yen, traditionally two of the safer haven currencies have slipped back today, on the back of a strong day for equity markets.

The Australian dollar has been the best performer on the back of those better than expected Chinese exports numbers, however a word of warning needs to be flagged with respect to those import numbers which showed a decline for the second month in a row. This suggests domestic demand is still weak.

The pound has also had a fairly good week against the US dollar, in spite of there being no clear progress on where the Brexit process is going. On the plus side, the fact we’ve got an extension until October removes the near term risk of a “no deal” Brexit. This has helped support the pound in the short term, though the continued uncertainty is likely to weigh further on business investment over the rest of the year.

Commodities

Crude oil prices still look solid, helped in some part by the market reaction to this morning’s Chinese trade data, however these could still come unstuck next week when we get sight of the latest China Q1 GDP, as well as industrial production and retail sales data for March.

The supply outlook is also helping support prices due to supply disruptions in Venezuela, Libya and Iran. The bigger problem with that is if an oil price above $70 starts to crimp demand at a time when a series of global bodies, including the IMF, are warning that global growth is slowing. Opec's desire to sustain higher prices could be the catalyst that caused demand destruction.



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