market relief

Equity markets in Europe were mixed today. 

Europe

Domestic politics is putting pressure on the IBEX 35 and the FTSE Mib. The London market is being dragged down by energy and financial stocks.

The UK government has sold a 7.7% stake in RBS, taking its shareholding down to roughly 62.3%. In May, the bank reached a settlement with the US Department of Justice (DoJ) regarding the sale of financial products in the run up to the credit crisis. The fine was $4.9 billion, although two years ago there was speculation it was going to be in the region of $12 billion. The settlement with the DoJ put the wheels in motion for Westminster to cut its stake in the bank. The share price has been hit today, but in the medium- to long-term it is positive news, as the bank is showing signs of financial independence. The share price of Lloyds was pushed higher during the period when the government reduced its stake in the company, and we might see a repeat with RBS. Its share price has been broadly rising since July 2016, and if the bullish move continues, it could target 300p.

Ryanair announced solid traffic figures for May and the stock is up on the back of it. Last month the number of passengers increased by 6% to 12.5 million, and the load factor rose by 1% to 96%. The airline confirmed that air traffic control strikes and staff shortages prevented a better performance. The stock price has been range bound lately, but if it remains above the 200-day moving average at 1,646p, its outlook might stay bullish.

Morgan Stanley warned that Carnival could endure a slowdown in the fourth quarter due to overcapacity, hurricane risks and higher fuel costs. The bank pointed out that the rally in the US dollar is a ‘double negative for cruise stocks’ and warned that investors should be ‘relatively cautious’ about the sector. The share price has been falling since September 2017, and if the bearish move continues, it could target 4,400p.

Shares in Sky were nudged higher after UK Culture Secretary, Matt Hancock, cleared the way for 21st Century Fox to bid for the company, provided it sold off Sky News. Sky has also been approached by Comcast, and Mr Hancock announced he will not intervene in that takeover attempt. A bidding war between Comcast and 21st Century Fox might ensue.

US

Stock markets are mixed as traders are a little concerned about how trade talks are developing. Washington DC and Beijing are far from reaching an agreement, and the mood is cautiously optimistic.

The tech-heavy NASDAQ composite reached a record high, and the index was helped along by popular tech stocks like Amazon and Facebook.

The ISM non-manufacturing PMI report came in at 58.6 in May, while economists were anticipating 57.5, which was an improvement on April’s 56.8. This underlines the health of the US economy. The Federal Reserve are meeting next week, and a rate hike of 0.25% is widely expected. The jury is still out over whether the US central bank will hike rates in September and December, or just December.

FX

The US dollar index is firmer as a lack of progression in US and Chinese trade talks has prompted inflation fears. Protectionist policies can lead to higher prices and therefore push up inflation.

EUR/USD enjoyed a positive move this morning, but the turnaround in the US dollar has weighed on the single currency. The eurozone services PMI report for May slipped to 53.8, while economists were expecting 53.9. The report showed the growth rate of the industry has declined for the fourth month in a row, which highlights the economic soft patch the region is going through.

GBP/USD has been helped along by the solid services data from the UK. The services PMI report jumped to 54 in May, from 53 in April, while economists were expecting 52.8. It is likely the royal wedding and two bank holidays last month played a role in the economic upturn.  

Commodities

Gold is slightly higher despite the firmer US dollar. The inverse relationship between the two markets has been strong recently, but today we are seeing an increase in demand for gold. The slight uncertainty over trade talks might be fuelling the move higher in gold, as dealers seek out assets that are deemed to be lower risk. Traders are widely anticipating an interest rate hike from the Federal Reserve next week, and gold is likely to remain under pressure in the run up to the announcement.

Brent Crude and WTI are lower on the session after Saudi-owned Aramco raised all July oil pricings for the Mediterranean and Northwestern European countries, and it raised most of the July oil pricings for Asia and the US. The oil market has been hit on the back of this, in particular Brent Crude. 

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