Stocks are sliding as we approach the end of the trading day. 

Europe

There was a sense of caution in the morning session, but nerves have now set in for most traders. The global political situation continues to look bleak, and traders are taking cash out of equities. The recovery in global equity markets in recent weeks remains fragile, and without an incentive to buy, traders won’t go long.

Whitbread is in the spotlight after Elliott Advisors revealed they now own a 6% stake in the company. The activist investor is pushing for a break-up of Whitbread, as it believes the demerger of Costa Coffee and Premier Inn would add value. Sachem Head, a US hedge fund, already own a 3.4% stake in Whitbread, and is also pushing for a demerger. The board of directors will now be feeling the heat from shareholders to add value, as the investment companies will be pushing their agenda. The stock hit an eleven-month high today, and if the upward move continues, it could target 4,400p.

Shire sold its oncology business to Servier for €2.4 billion. The department contributed greatly to Shire’s earnings over the years, but no longer fits into its longer-term strategy. There is talk the funds raised from the sale could be returned to shareholders in the form of a share buyback scheme. Shire is also in the news as there is talk that Takeda is interested in making a bid for the company. The Japanese outfit is reported to have firmed up details with its lenders in preparation for the possible bid.

The US are planning on imposing new sanctions on Russia as a punishment for assisting the Syrian regime. This follows recent action taken against Russia over their interference in the US presidential election in 2016. Companies with exposure to Russia are feeling the pinch. Evraz, the steel maker, has lost ground today, and so has BP, on account of exposure via Rosneft.

WPP shares are lower today after Sir Martin Sorrell, the CEO, announced his departure from the company. Mr Sorrell stood down as an investigation into his alleged misconduct was being carried out. The news has knocked investor confidence, and the timing isn’t great as the company has warned on revenue twice in the past eight months. With the rise of online advertising, WPP is losing market share to the likes of Google and Facebook.

US

US equity indices have started the week on a strong note as earnings season continues. For the time being, dealers are focusing on the corporate and economic updates from the US, and paying less attention to the political landscape.

Bank of America was the latest US bank to report its first-quarter figures. Earnings per share and revenue both topped analysts’ expectations. Cost cutting and operational improvements helped profits jump, but trading revenue missed estimates – a common theme on Wall Street.  

Last month US retail sales grew by 0.6%, ahead of economists’ expectations for a reading of 0.4%, and well up on the 0.1% decline in February. The headline figure was rosy, but the core report showed a less bullish situation. Core retail sales showed an increase of 0.2%, meeting forecasts and unchanged on the month.

The New York Fed manufacturing index in April slipped to 15.8 from 22.5 in March, with economists expecting a reading of 18.8.

FX

The US dollar index continues to be weak .The downward trend has been in place for a number of years, and the strained political relations the US has with China and Russia is putting pressure on the US dollar.

EUR/USD has been pushed higher by the soft US dollar. It was a quiet day in terms of eurozone economic indicators. German WPI increased by 1.2% in March on an annual basis, unchanged from February. This suggests that demand at the wholesale level is steady. Last week we saw an increase in German CPI, evidence that demand is picking up in Germany.

GBP/USD hit its highest level since January, as the pound remains in its upward trend against the US dollar. There were no major UK economic announcements today, but that didn’t stop the pound from driving higher. Sterling has been climbing versus the greenback for over a year, and the trend isn’t showing signs of changing. Traders will be keeping an eye on UK unemployment and wages data, which are out tomorrow. 

Commodities

Gold is edging up as the dip in the US dollar helps the yellow metal. Gold is still enjoying a strong inverse relationship with the US dollar. It has been broadly range-bound in 2018: year-to-date, the commodity has spent the bulk of its time in the $1310 to $1350 range, and at the moment it is at the top end of the range.

WTI and Brent Crude oil have been hit by profit-taking. The oil market reached its highest level in over three years last week due to uncertainty in the Middle East. Tensions are still high in light of the western airstrikes in Syria over the weekend, but the bullish trend is unlikely to be shaken.

 

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