UK & Europe

European markets drifted between gains and losses as traders looked to a speech from Fed Chair Janet Yellen in Philadelphia to add some colour to Friday’s disastrous US unemployment report. The FTSE 100 significantly outperformed the other European stock indices thanks to a surge in mining shares.

Co,modity stocks are continuing to benefit from Friday’s sharp drop in the US dollar, which along with noises from the US about China reducing its excess steel capacity as part of a bilateral trade agreement, is supporting a rise in metals prices. Shares of miner Anglo American gained triple digits.

Shares of Old Mutual and Standard Chartered were top risers. The reduced prospect of a US rate hike is a positive for banks focussed in emerging markets, where there is significant dollar-denominated debt.

News that Easyjet cancelled 173 flights in May, largely due to French ATC strikes, on top of a lower pound-euro exchange rate, which is a headwind for the British taking holidays in Europe, weighed on airline shares.

Housebuilders have been some of the biggest stock market fallers on the renewed risks of a Brexit. Barratt Developments and Taylor Wimpey both fell in excess of 1%. There’s still a shortage of housing, which should limit the damage, but a Brexit and its impact on immigration could exacerbate problems finding skilled labour. Short-term housing demand may be disrupted as home-buyers wait for the result of referendum.

 

US

US stocks opened in positive territory. Hope that Janet Yellen will save the day has helped stocks unwind all of Friday’s losses following the weak non-farm payrolls print. Whilst the Fed continues to backtrack on any sign of economic weakness, the liquidity party can continue.

The slide in the stocks that began after Friday’s very disappointing US jobs report has eased, for now, ahead of a speech from Fed Chair Janet Yellen at 5.30pm BST. The noticeable slowdown in the US labour market over the past two months only need be a problem for stock markets if the Fed continues to hint at a summer rate hike. The S&P 500 near record highs tells us easy monetary policy trumps growth worries. Yellen has recently said she expects a rate hike to come in the “coming months.” One data point won’t derail the Fed’s expectation of gradually raising rates, but in the minds of the majority of the FOMC, likely pushes back the next rate rise to September.

 

FX

The British pound fell to a three-week low after two polls from TNS and YouGov showed the Leave camp in the lead. Sterling recovered in afternoon trade; Keith Chegwin’s support for Brexit was perhaps less of a factor than short-covering at three-week lows.

The focus of the Brexit debate has finally shifted away from the economics to the politics. The polls imply the British public has grown tired of project fear and are looking for unanswered questions on immigration and lost UK sovereignty. The Remain campaign is running out of global institutions to lean on with dire economic forecasts in the event of a Brexit, so the momentum could remain with the Leave camp over the next week or so.

The euro brushed off data showing German industrial orders fell more than expected in April in what was the biggest monthly drop in nine months due to weaker non-Eurozone foreign demand.

The Swiss franc was a top FX riser after Switzerland voted against an unconditional basic income over the weekend.

 

Commodities

Oil prices rose on Friday, with Brent crude making a fresh seven-month high above $50 per barrel after an official from Abu Dhabi suggested a quicker contraction in global supply will push prices to $60 per barrel. Oil forecasts from OPEC producers are obviously tainted with a degree of self-interest but it does fall in line with data showing falling US production. The real test will be whether oil back at $50, by itself, triggers more US supply to come back to the market.

The price of gold flat lined on Monday ahead of the speech from Fed Chair Janet Yellen. Ms Yellen has never sounded as hawkish as some of her colleagues on the FOMC so her comments will probably fall in line with what she has said previously. A modestly dovish tone may not be enough to trigger more gains for gold rallied $35 per oz on Friday alone.

 

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