Europe

Equity markets in Europe finished a holiday shortened week very much on the front foot and despite this week’s volatility it’s set to be a positive week for equity markets. On a monthly and quarterly basis the prognosis is much less positive, with the FTSE100 posting its worst quarter since 2011, while the DAX also had a disappointing quarter. It remains to be seen whether this week’s price action acts as a catalyst for a positive Q2 when we return from the Easter break next week.

The CAC40 was boosted by reports that Nissan was looking to merge with Renault, in an attempt to share the costs towards electric cars. Renault currently owns 43% of Nissan, while Nissan has a 15% stake in Renault.

While it is easy to get carried away with the prospect of a new global car giant that would be able to compete with VW and Toyota, it is also important to remember that as recently as 7th March the French government ruled out selling its 15% stake in Renault, which would suggest that the obstacles to a deal could be quite high, though not completely insurmountable. 

GKN shares are higher despite Goldman Sachs cutting its stake to 6.4%, from 11.8%, though the bid saga between the company and Melrose appears to be at an end after GKN shareholders accepted the $12bn bid.

Barclays shares don’t appear to have been too badly affected by this afternoons news that they will have to pay $2bn in civil penalties in relation to mortgage backed securities claims, though they are trading just above one month lows.

In other company news outsourcing group Compass is underperforming on the back of a negative read across from a disappointing update from French services group and outsourcer Sodexo, who issued a profits warning, cutting their outlook for 2018, as a result of problems in its US operation. It would seem that the woes in outsourcing aren’t confined to being a UK problem.

Easyjet and British Airways owner IAG are also having a good day ahead of next week’s passenger numbers, which after such a cold winter here in the UK, could well see an Easter surge as UK consumers head away for a bit of sun and relaxation.

US

After last night’s weak finish US markets opened higher today in what is set to be the first negative quarter for over 2 years.

Investor concern continues to revolve the tech sector which has driven the bulk of the market gains in the past two years, with President Trump turning his attention on Amazon in a tweet this morning bemoaning the fact that the company pays little in the way of taxes at a Federal and state level. This shouldn’t really be a surprise given that companies tend to pay taxes on profits and up until recently the company hasn’t made a profit. Nonetheless the personal nature of the criticism does appear to suggest that we could see US lawmakers look at measures which might increase scrutiny on how Amazon does its business.

On the data front weekly jobless claims hit their lowest levels since 1973 in further signs of a fairly tight US labour market. These numbers make it all the more surprising that consumer data continues to remain weak. Personal spending in February rose 0.2%, while incomes rose 0.4%, but despite consumer confidence levels near record highs US consumers have been reluctant to put their hands in their pocket and spend their money. More worryingly the latest Chicago PMI showed a sharp drop in March to 57.4 from 62, with new orders also slowing sharply.

FX

The US dollar has had another difficult quarter closing lower in five consecutive sessions, its worst run since the financial crisis. While these sorts of runs tend to be the exception rather than the rule, it still raises the question as to how much more downside there is to this particular decline. By the same token the euro has risen for five successive quarters.

The pound has also continued its decent run, buoyed by the recent announcement of a Brexit transition deal, and an economic outlook which has remained relatively positive, though the weakness of the US dollar has also helped in keeping a floor under the currency. The latest consumer confidence numbers came in at its highest levels in 10 months, though the level of lending still remains a little on the high side. Mortgage approvals were also slightly weaker against a backdrop of slightly lower house prices.

Commodities

Oil prices have had a decent month as well as a decent quarter but with the start of the warmer summer months and the prospect of rising US production even the extension of the oil price cap into 2019 is going to make it difficult to sustain the rebound we’ve seen this quarter much above the recent peaks. OPEC also needs to be mindful that if oil prices push much higher they could trigger a global slowdown at a time when some economic indicators in Asia and Europe are already starting to plateau, and turn over. 

For the moment prices do look a little toppy and a US dollar rebound in Q2 could well be the catalyst that prompts them to drift back lower.

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