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European equity markets are mixed as traders don’t know which way to look. 

Europe

In the past two months European markets have enjoyed a positive run, but traders are now looking for an incentive to stay long. The absence of any fresh positive news has encouraged some profit-taking.

London-listed commodity stocks like Glencore, BHP Billiton, Rio Tinto and Anglo American are lower today after China released some mixed economic data overnight. Growth in the world’s second-largest economy is cooling, and dealers are worried China’s demand for natural resources will wane. Fixed-asset investment and retail sales came in below economists’ forecasts, while industrial production topped estimates. Traders would need to see a turnaround in China’s economic strength in order to become more confident in the mining sector.

EasyJet had a record first-half in terms of revenue and passengers. The airline posted a loss for the first six months, but that was partially because of expansion costs at Berlin’s Tegel airport. Forward bookings at the air carrier have improved on the year. EasyJet are forecasting a full-year pre-tax profit of between £530 million and £580 million, which would be a significant improvement on last year’s £408 million. The airline has benefited from the demise of some competitors, and is performing well. This morning the share price hit a 29-month high, and if the bullish sentiment continues it could target 1,900p.  

Vodafone CEO Vittorio Colao will step down in September. Mr Colao ran the company for ten years and is seen as instrumental in turning the firm from a mobile operator into a multinational telecoms giant. Thanks to Mr Colao, Vodafone has a strong international presence and offers a wide range of digital services. The company has recently set its sights on the German market, acquiring assets from Liberty Global in a  move that will pit Vodafone against Deutsche Telecomm. The news of Mr Colao’s departure has put pressure on the share price.

US

Equity benchmarks are in the red as traders become more hawkish. The jump in US government bond yields is prompting traders to switch out of stocks and into bonds. US indices have reached multi-week highs recently on optimism about the US and China coming to a trade deal, and today investors are banking their profits.

US retail sales in April grew by 0.3%, meeting estimates, while the retail sales report stripping out auto sales also grew by 0.3%, which came in below the expected 0.5%. The New York Empire manufacturing index jumped to 20.1 in May, which comfortably exceeded the forecast reading of 15. The upbeat economic updates prompted traders to become more hawkish. The yield on the US 10-year government bond is now above 3.05% – its highest level since 2011.

FX

The US dollar index jumped to a new high for 2018, as US government bond yields have ticked up to reflect the perception that the Federal Reserve might hike interest rates three more times this year. The greenback got off to a lacklustre start today, but its fortune turned higher after the yield on the US 10-year yield broke above 3% – a level it has been trying to exceed recently.

EUR/USD drifted lower after the eurozone confirmed the growth rate in the first-quarter cooled to 2.5% on an annual basis. The same period last year saw a growth rate of 2.7%. This report confirms the drop in economic momentum that Mario Draghi, president of the European Central Bank, warned about earlier this month. The currency pair briefly dipped to a five month-low, and the recent bearish trend is showing no signs of coming to an end.

GBP/USD enjoyed a short-lived move higher this morning after the UK revealed an increase in average earnings in March of 2.9%, meeting analysts’ expectations. Sterling suffered on account of the strong US dollar. The currency pair has been in a clear downtrend since mid-April, and if there is a break below 1.3460, the pound might drop to 1.3300.

Commodities

Gold has broken below $1,300, and has fallen to a five month-low. The surge in the greenback is driving gold lower. This move in gold is significant as the metal has snapped out of the range it has been in for the bulk of 2018. Investors are expecting an interest-rate hike from the Fed in June, and the creation of a new multi-month low could lead to further selling pressure in gold. 

WTI and Brent Crude oil both reached fresh new 42-month highs as dealers are still worried about future supply levels. OPEC are still committed to keeping oil supply reduced, and the uncertainty over the Iranian sanctions are a factor too. The oil market has been in a solid upward trend for 11 months, and the current political climate is adding to the upward pressure.

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