market relief

European markets drifted lower today as a lack of new positive news prompted traders to bank recent profits. 

Europe

Last week we saw multi-week highs on major European equity markets, so a bit of a pullback isn’t a surprise. Stock markets in Europe have snapped out of the negative trends they were in during March, and today’s nudge lower might attract fresh buyers. 

Centrica announced that even though it had a difficult start to the year, it is still on track to achieve its full-year target. The severe weather in the UK in February and March saw the company have its busiest week in terms of boiler repairs. Competition has been heating up between energy providers, and Centrica confirmed is energy supply accounts fell by 110,000, which it blamed on ‘market switching’. The company is committed to cost cutting, and it expects to trim up to 4,000 jobs in the next few years. The share price has been in decline since 2013, and if it falls below 123p, it could pave the way for 100p to be tested.

IWG is in the crosshair of three separate private equity companies. TDR Capital, Startwood Capital and Lonestar have all expressed an interest in the firm. The stock price of IWG hit a seven-month high on account of the news. Investors are preparing themselves for a bidding war. 

Shares in Marks & Spencer are in the red after HSBC cut its rating on the stock from buy to hold, and trimmed the price target to 300p from 400p. The stock price has been in decline for a year, and a break below 262 could pave the way for further losses.

US

The Russell 2000 reached a record high, while the NASDQ 100, Dow Jones, and S&P 500 all reached multi-week highs, as traders are more optimistic about a trade deal with China. President Trump tweeted that he want to save Chinese jobs, in a speech about ZTE – a telecoms company based in China.

Investors are viewing the update as a sign he is willing to take a softer stance when it comes to trade talks.

FX

The US dollar index continues to be weak as traders aren’t as hawkish as they previously were. Dealers are still divided over whether the Federal Reserve will announce two or three more interest rate hikes this year, and in turn the yield on the US 10-year government bond can’t hold on to the 3% mark.

EUR/USD is taking advantage of the dip in the US dollar. It was a quiet day in terms of economic updates from the eurozone today, but traders will be paying close attention to the growth figures tomorrow. The currency bloc has gone through an economic soft patch, and Mario Draghi, the president of the European Central Bank, has recently expressed concern about this. If the region continues to produce underwhelming economic data, we could see another leg lower for the euro

GBP/USD was also helped by the slide in the greenback. There were no major economic announcements from the UK today, so volatility was low. The 200-day moving average at 1.3585 is still an area of consolidation for the currency pair, and if the metric can be held we could see a bounceback in the pound. Tomorrow, the UK releases the latest unemployment and average earnings figures, and the latter will be closely watched as Mark Carney, the governor of the Bank of England, lowered his outlook for wages growth last week.

Commodities

Gold is a touch higher today as the drop in the US dollar gave the metal a lift. The 200-day moving average at $1,306 has acted as support recently, and should it continue to do so, the metal might retest the upper end of its recent range at $1,355. Traders are less fearful the Fed will raise rates three more times this year, and that is assisting gold too.

Brent Crude and WTI are higher this afternoon, and the former hit a fresh 42-month high. OPEC increased its demand forecast for 2018, and it also stated production increased by 12,000 per day in April, as Saudi Arabia upped output. The firmer oil price recently contributed to a jump in US output too, as the Baker Hughes rig count jumped to its highest level since March 2015.

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