European stocks are clinging on to today’s gains. 

Europe

The geopolitical outlook is cautiously optimistic, but traders haven’t forgotten about the possibility of a trade war between the US and China. Delegates from the US are set to begin trade talks in China, and even though relations are good at the moment, there is no guarantee that will last.

Sainsbury’s shares have jumped by 15.1% after it announced plans to merge with Asda, which is owned by Walmart. If the deal is approved by the competition and markets authority, it would create an entity worth £7.3 billion. The landscape of the UK supermarket sector has changed drastically due to the rise of Aldi and Lidl, and that was the main driver of the proposed merger. Sainsbury’s predict £500 million will be saved through synergies, and it hopes the prices on some products will fall by up to 10%. Should the merger be given the green light by the regulator, the new group would be become the largest UK supermarket by market share.

Advertising giant WPP revealed falling revenue, but still topped expectations, and stated it would complete a strategic review of the business. First-quarter sales dipped by 0.1%, while the consensus was for a drop of 1%. Traditional advertisers such as WPP have been losing revenue to the likes of Google and Facebook. Earlier this month Sir Martin Sorrell stepped down as CEO amid an investigation into ‘improper behaviour’. The company is planning to take a ‘fresh look’ at its operation, and that may include asset disposals.

US

US equity markets are higher today as traders focus on positive economic and corporate news. The Dow Jones and S&P 500 have been a bit lacklustre recently, but both indices are holding above their respective 200-day moving averages, which points to a broadly bullish sentiment. The possibility of a trade war with China is still a possibility, albeit a small one, and that could curtail any major rallies.

McDonald’s shares are higher today after the company reported solid results. Earnings per share and revenue were $1.79 and $5.14 billion respectively, while analysts were expecting $1.67 and $4.98 billion respectively. Global same-store-sales increased by 5.5%, and that comfortably topped the 3.7% that analysts were expecting. The stock gapped higher and is near a three-month high, and if the bullish move continues it could target $170.

US core personal consumption expenditure (PCE) jumped to 1.9% in March, up from 1.6% in February. The economic indicator is the Federal Reserve’s preferred method to measure inflation, and it points to a healthy increase in demand. The Fed will make its next interest decision on Wednesday and no change is expected, but dealers will be listening out for clues about potential future changes to monetary policy.

FX

EUR/USD is in the red again after German retail sales dropped by 0.6% last month, with economists expecting an increase of 0.8%. The dip in sales highlights the economic soft patch the region is going through. Last week, European Central Bank president Mario Draghi expressed concern the currency block was losing economic momentum and today’s data underlines it.

GBP/USD remains under pressure as the market is less worried about a possible rate hike from the Bank of England next month. Sterling has come under reassure lately after Mark Carney, the governor of the Bank of England, stated that a rate hike next month is far from a done deal. The pound has been losing ground versus the US dollar for nearly two weeks and if the 1.3712 level is taken out, it could pave the way for further losses.

Commodities

Gold has fallen to its lowest level since late March as the US dollar has pushed ahead. The inverse relationship between the US dollar and gold remains strong. The sizeable jump in US PCE has given weight to the argument the Fed will hike rates three more times this year. The metal has been losing ground for the past two weeks, and if the bearish move continues it could target $1,300.

WTI and Brent Crude oil are higher today as traders are concerned about the situation in Iran. There is speculation the US will reintroduce sanction on Iran next month and this is keeping the oil market strong. Earlier in the session oil was weaker as US rig count increased by 5 rigs to 825 – its highest level since March 2015.

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