Europe

It’s been a day of two halves for European equity markets today with the German DAX making a two month high, at around the same time the euro made a two month low, before retreating on the back of a rebound in the single currency in the afternoon session. The FTSE100 has outperformed, also making a new two month high at 7,435, before also retreating as the pound rebounded from a one month low against the US dollar.

The slip back from intraday highs for European markets also coincided with the US 10 year yield finally hitting the 3% level for the first time since January 2014, while US 2 year yields also came within a whisker of 2.5% for the first time since 2008.

Markets have placed an enormous amount of emphasis on this 3% level in recent weeks and while it is important on a psychological level it is probably of lesser importance than the twin peaks we saw in 2013, and particularly the peak of 3.03% that we saw in the dying embers of that year. A move through here has the potential to be much more significant as it would return us to levels last seen during 2011. 

With the deadline looming tomorrow for Japan’s Takeda Pharmaceuticals to make a full and final offer for Shire there has been further chatter that a further bid has been submitted that is currently being considered by Shire’s board. There is still no clear idea as to what the final number might be, but it seems safe to assume it is higher than the £47 per share bid received at the end of last week. As a result Shire’s share price is once again leading the gainers.

The rise in Brent crude prices through $75 a barrel along with a positive broker note on BP from Goldman has seen the oil and gas sector help support the FTSE today.

According to the note BP is on the cusp of delivering one of the strongest pipelines of new oil and gas projects this year. with the share price back near its highest levels this year a lot of this good news may already be priced in, however if oil prices do head towards $80 a barrel as seems probable then we could see further gains in the coming weeks, especially as BP is due to report its Q1 numbers next week.

On the downside high street bookmakers have taken a beating on concerns that the stake on Fixed Odds Betting Terminals might be cut from £100 to a maximum of £2, with William Hill sharply lower, along with Paddy Power Betfair and Ladbrokes owner GVC Holdings. This has also raised concern that other gambling taxes may rise to offset the loss of tax revenues that this cut would precipitate.

US

US markets opened higher this morning in the wake of a slew of earnings announcements that have broadly beaten expectations.

Coca Cola, Caterpillar and Verizon all posted numbers that beat on the headline number as well as on overall revenues. Caterpillar also increased its full year guidance by $2, while Verizon saw its monthly subscriber base rise more than expected, largely on the back of wearable devices.

Apple shares don’t appear to be been too badly affected by todays warning by Austrian chipmaker AMS that chip sales in the latest quarter would be significantly weaker than forecast. Over the last two days Apple shares have slipped back over concerns about a slowdown in handset sales. This is yet another warning from an Apple supplier that hints at the real possibility that we may well be past peak iPhone, or that current price points may well have been pushed beyond the point at which they are sustainable.  Next week’s Apple results will be particularly noteworthy in that regard.

On the data front US consumer confidence rose in April to 128.7, up from 127.00 in March.

FX

The euro initially slipped lower today hitting a two month low against the US dollar after the latest German IFO business survey showed that the German economy softened in April. The newly revamped survey which now accounts for a sample size of 7,000 German business and now takes in the much bigger services sector. Without a previous historical sample size to work from, today’s number of 102.1, while weaker than the adjusted March number doesn’t give a particularly significant insight into the German economy, other than economic activity has slowed a little as Q2 gets under way, and sentiment has soured.

The pound has found a little bit of support, despite hitting a one month low earlier this morning, after better than expected public sector borrowing numbers for March, and 2017 as a whole.  Public sector borrowing for the last fiscal year came in at its lowest level since 2006-07, and saw the UK post its first current account surplus since 2001-02. This would be fifth year in row that government borrowing has fallen, however further progress could be complicated unless the UK economy starts to show better economic activity than has so far been the case in Q1. We’ll see later this week how much the UK economy has grown relative to Q4 of last year when we get the first iteration of Q1 GDP on Friday morning.    

Commodities

Crude oil prices edged higher again today pushing above $75 a barrel and their highest level since November 2014 as concerns over the Iran nuclear deal and possible US sanctions continued to underpin the price. The $80 a barrel level still looks a real possibility and while central banks will likely welcome this new inflationary tailwind, it is also the wrong kind of inflation in that it hits consumers directly and as such could prompt a change in consumer spending away from the more discretionary items. With US driving season not too far way either a higher oil price is likely to be the wrong kind of antidote for US consumer spending.

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