It’s been a fairly lacklustre start to the week for markets in Europe, though the weak pound has helped the FTSE 100 and FTSE 250 push up to their highest levels since early February. An easing of geopolitical tension has also helped, on reports that US treasury secretary Steve Mnuchin might be heading to China to thrash out some form of truce on trade with Chinese officials.

Europe

Banking stocks have managed to record a fairly decent day, helped by rising bond yields across the board as higher interest rate expectations help to push UK and German 10-year yields up to one-month highs. Royal Bank of Scotland, which reports its latest Q1 update on Friday, has seen its share price return to its highest levels in two months.

On the companies front, troubled outsourcing company Capita has seen its shares surge over 10% today despite new CEO Jon Lewis announcing a whopping loss of £513m, while at the same time announcing a £700m rights issue at 70p a share.

The new cash will be used to pay down debt as well as investing in new technology, and overhaul the company from top to bottom. Only last week the company renewed its contract with the BBC to collect the licence fee, so while today’s reported loss doesn’t make for pleasant reading, today’s announcement does appear to suggest that management have a turnaround plan that might work. It also shows that the company has the confidence of shareholders in pulling it off, given that the issue is fully underwritten.

Also on the FTSE 250, shipping services provider Clarkson posted a profit warning for the full year as a result of a challenging shipping market, sending the shares sharply lower. Lower freight rates doesn’t tally with optimism over the health of the global economy, though over-capacity in the industry has also been a key factor. The announcement is all the more surprising because it turns on its head an announcement in March that management were optimistic over a recovery in the shipping market. There is the possibility that recent tensions over trade have dented this recovery as customers delay making key decisions. This of course does raise the prospect of a significant rebound if trade tensions subside.

US

After two days of declines, US markets opened on the front foot today as earnings announcements continued to dominate the news flow.

Among the numbers, oilfield services provider Halliburton saw a big rise in Q1 revenues to $5.7bn with the US market leading the way, helped by the continued rise in oil prices since the beginning of the year. The company was also able to writedown its entire investment in its Venezuela operations as business conditions in the region deteriorated further.

On the data front, the latest flash manufacturing and services PMIs for April showed a significant improvement, coming in better than expected at 56.5 and 54.4, after a slowdown in March.

FX

The US dollar index has swept all before it today, heading back towards its highest levels in two months, helped by US bond yields which have continued to rise through multi-year highs. The US 10-year yield came to within touching distance of 3% at 2.9957%, before retreating as investor concern about rising inflation put pressure on US treasury prices. A late slide in yields in the afternoon came about as a result of a softening in commodity prices as oil prices retreated from their recent peaks.

The pound has continued to come under pressure on the back of Bank of England governor Mark Carney’s remarks last week, about the potential delaying of a possible interest rate rise. The pound is now down for five days in a row and has given up all of its gains in April, in less than the time it took to make them. Usually April, tends to be a positive month for sterling, however given current trends this year could well be the exception if the current weakness continues in the same fashion as the previous few days. The increase in inflation expectations in the past few days, along with the rise in UK gilt yields makes the timing of last week’s remarks all the more curious and a little surprising particularly since UK CPI still remains well above target for the central bank. 

Commodities

Crude oil prices have slipped back further from their peaks of last week after Iranian officials suggested that an extension to the output freeze may not need to be extended beyond the end of this year, if prices continued to rise. Rising US rig counts and further increases in US production are likely to act as a headwind to further price gains in the short term, but with concerns about further sanctions any dips are likely to be shallow.

Aluminium prices also came under pressure after US officials said it might delay imposing sanctions on Russian aluminium producer Rusal. Gold prices also continued to slip back, closing at their lowest levels this month on the back of a stronger US dollar and higher yields.
 

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