It’s been a decent end to the week for markets in Europe, with the FTSE 100 hitting a one-month high after edging above 7,120 for the first time since 10 May, with the FTSE 250 also doing well after experiencing three days of losses. It’s certainly helped that today’s UK economic data showed the economy grew by 2.3% in April, with services activity driving most of the improvement.
The more positive tone has also manifested itself with another record high for the Stoxx 600, as markets across Europe finish the week very much on the front foot. Some sectors have lagged, notably financials, which are seeing a little bit of underperformance on the back of softer bond yields, with the UK gilt yield trading down at a three-month low of 0.69%, before rebounding.
Other underperformers have been in the travel and leisure sector, as delays to reopening prompted British Airways to put some of their staff back on furlough, while the likes of Cineworld and Wagamama’s owner Restaurant Group are down again for the second day in succession, as fears grow that next week’s announcement of a wholescale 21 June unlock becomes less likely.
BT Group has also slipped back after yesterday’s gains, with some reports suggesting that new shareholder, Altice’s Patrick Drahi, could press management to spin off Openreach, which is very much the jewel in the BT crown. While there is no question that Openreach is worth more as a separate entity, BT management would be foolhardy in the extreme to hive off their best asset and hollow out the rest of its business in the process. It is very much a case that BT is worth more than the sum of its parts. It would also be highly disruptive at a time when high-speed broadband rollout is such a key component of the UK’s economic strategy over the next 5-10 years.
On the plus side, basic resource stocks are the best performers, with the likes of Glencore and Antofagasta outperforming, due to a rebound in copper prices. Anglo American’s spun off coal operation, Thungela Resources, also looks set to finish a rollercoaster first week of trading with a positive end to the week.
US markets initially picked up where they left off yesterday with the S&P500 hitting yet another record high in the opening half hour, however the lack of momentum appears to hampering significant progress to the upside with some profit taking kicking in ahead of the weekend.
On the data front the latest University of Michigan inflation expectations survey showed an unexpected fall to 4% on a one-year basis. This appears to lend support to the idea that the sharp rises we’ve seen in prices over the past few months is likely to be transitory in nature. Despite this, US bond yields have rebounded from three-month lows of 1.4270%, although we are still set to finish the week with yields sharply lower.
Once again, we’ve seen the likes of GameStop and AMC Entertainment take centre stage, rebounding from the big falls we saw yesterday, while drugmaker Vertex Pharmaceuticals shares fell sharply after the company halted development of a drug designed to treat a rare genetic deficiency.
As far as the major benchmarks are concerned pharmaceuticals are underperforming, with Amgen and Johnson and Johnson lower, with McDonalds leading the Dow gainers.
Currency markets have continued to range trade, although the pound has continued to hold up reasonably well, although it is down against the US dollar.
Today’s UK April GDP numbers were broadly in line with expectations, though there was some disappointment around the industrial and manufacturing production numbers which weakened unexpectedly. Nonetheless, despite concerns about a delay to the 21st June economic reopening the general feeling is that it will merely be a delay as opposed to a cancellation.
The US dollar also appears to be finding some support as we head into the weekend, and ahead of next week’s Fed meeting, where the current weakness in yields might give the Fed some room to be slightly more hawkish than expected when it meets next week.
Oil prices have continued to move higher this week with Brent hitting its highest levels in over two years. Gold has made little progress this week despite the weakness in US yields which ordinarily helped provide it with support.
Copper prices have found some support after hitting a one week low, and trend line support from its February lows yesterday.
After looking as if they might crash below $30,000 earlier this week, bitcoin prices look set to finish the week higher, a remarkable turnaround given the bearishness seen at the start of the week.