It’s been a mixed finish to the week for markets in Europe, with the FTSE 100 once again outperforming led by gains from the basic resources sector.
This week’s rebound for European markets has been a lacklustre one and part of that may be down to the fact that on a fiscal level the response of European government has been much less expansive as that of the US.
On the plus side of the ledger, the biggest gainers today have been the likes of CRH and Ashtead in the wake of last night's reports that US politicians had crafted together a $579bn infrastructure stimulus plan, with both companies likely to benefit if any of it comes to pass. While this can be construed as progress, we still remain some way from it passing into law, however it is a start, and with some compromise on both sides a lot of it would trickle down into infrastructure improvements.
JD Sports is leading the gainers, retesting the record highs from May, on a positive read across from last night’s bumper Q4 numbers from Nike which saw the company boast record revenues in its US market. Given JD Sports position in the UK market, and its recent acquisition of Finish Line, it's highly likely that JD Sports will have reaped the benefits of this huge boost in Nike’s US business.
The travel sector has undergone a bit of a swoon today on disappointment over the latest government relaxation of travel restrictions. The addition of Malta, Madeira and the Balearics to the green list, as well as an indication that the government would look at dropping quarantine rules for fully-vaccinated UK residents returning home from amber list countries later in the summer, hasn’t had a positive impact on the travel sector today.
The government has once again been criticised for its cautious approach to the easing of restrictions as far as overseas travel is concerned, particularly in comparison to the EU, which is opening up faster, as concerns rise that the sands of time appear to be running out on the 2021 holiday season. While the EU approach appears to be quicker in reopening, this also comes with risks given how much higher the infection rate is in Europe, and the fact they are behind in their vaccination rates and aren’t testing anywhere near as many people.
There is a risk in opening up too soon the bloc may well get a short-term summer boost, and then have to lock down again hard in the autumn, merely displacing a problem they should have dealt with in the summer when the weather was warmer. This also helps explain why the likes of easyJet, Ryanair, JET2 and TUI weren’t able to hold on to their early gains, and has seen them since slide into the red.
US markets opened to the upside again today with the S&P 500 once again making another record high, after the latest PCE inflation numbers came in as predicted at 3.9%, and the highest level since 1992. While inflationary pressures have continued to rise, the latest data on personal spending numbers appears to speak to subdued consumer spending, coming in unchanged for May, although April was revised up to 0.9%.
Last night’s confirmation that US banks had all passed the latest round of stress tests, could well see a number of banks claw back further funds from their credit reserves, once all restrictions on buybacks and dividends are relaxed on 30 June. Today’s market reaction as far as banks are concerned has been fairly muted so far with little or no change in the likes of Goldman Sachs and the JPMorgan Chase share price.
Nike shares surged to a new record high on the open after the company beat expectations on both revenues and profits on its Q4 numbers. Revenues came in at $12.34bn, boosted by a 41% rise in digital sales, while its wholesale business also improved as the company saw a huge jump in revenue from its US market, probably helped by the various stimulus payments which helped boost consumer spending. The company also upgraded its sales outlook for the forthcoming year.
FedEx, similarly reported a decent set of numbers for its latest quarter, revenue rising 30% to $22.6bn while profits came in at $5.01 a share, however the shares sank due to a sharp rise in costs, while the company’s outlook for 2022 came in below analyst expectations. Capital expenditure is expected to rise by over 20% in order to help boost efficiency, as well as mitigate staff shortages due to the high volumes being seen as a result of the pandemic.
Virgin Galactic shares have also surged after the FAA granted approval for the company to fly customers into space.
The pound has had a disappointing end to the week, after the Bank of England left monetary policy unchanged. The central bank's dovish message undermined some of the expectation that the central bank might follow its US counterpart in talking about the likelihood of reducing the pace of its bond buying program. Commodity currencies have performed the best this week, helped by oil prices which have continued to edge higher.
The US dollar has slipped back in the last few days, as concerns about the timeline of US monetary policy were assuaged earlier this week by Fed chair Jay Powell and New York Fed President John Williams. The overarching narrative coming out from this week’s events is that while the likes of St. Louis Fed President Bullard, and Dallas Fed Robert Kaplan have a view on how the Fed will need to act in the coming months, it is the views of the holy trinity of Jay Powell, Richard Clarida and John Williams that probably carry the most weight, and for now the Fed is not changing anything.
Commodity prices have had a better week, after last week’s big falls, with oil prices continuing to edge towards the $80 a barrel level. Copper prices have also retraced some of last week’s decline, despite China flagging it will release extra reserves in the coming days. Underlying demand still remains positive for copper, as the transition to renewables helps keep a floor under prices.
Gold prices have rebounded modestly today, but have struggled for most of this week, mostly trading sideways since last week’s big falls.