market relief

European markets are higher this afternoon as traders are less worried about the state of global politics. 

Europe

Traders are viewing no more bad news as a positive, and are keen to buy back into the stock market.

Miners like Rio Tinto, BHP Billiton and Antofagasta are higher today after China announced solid growth figures overnight. In the first-quarter, the Chinese economy grew by 6.8%, while economists were expecting a reading of 6.7%. The retail sales report was also well received, after it showed growth of 10.1%, compared with the 9.7% that dealers were anticipating.

Shares in Associated British Foods are in demand today after the company revealed a small drop in first-half operating profit. Earnings dipped by 1% to £648 million, while the previous forecast was for £652 million. The stock lost approximately a quarter of its value between January and early April, so it is possible traders had already factored in poor results.

Primark saw profits rise even though margins were lower, but it foresees an increase in margins in the second-half of the year. The clothing division continued to increase its market share. The sugar business saw profit fall again, but that has more to do with weaker sugar prices. The company has the lowest cost base in the EU sugar market, which puts it ahead of its competitors.

JD Sports announced full-year record profits on the back of a 33% rise in revenue. The all-time high earnings are all the more impressive as the wider UK retail environment is struggling. Fashion houses like H&M and Next have complained about the difficult trading conditions. The rise of leisure wear and sports in everyday life has helped JD Sports. The firm stated that online and store sales are strong. The share price opened higher today and if the bullish sentiment continues it could target 400p.

US

US equity markets are firmly higher this afternoon as the fragile geopolitical situation has taken a back seat to the reporting season. Investors are all too aware of the heightened tensions in the Middle East, but for some, those fears have faded.

Shares in Netflix have gapped higher after the company announced higher-than-expected subscriber figures. First-quarter earnings per share (EPS) were $0.64 – meeting expectations, and revenue came in at $3.7 billion, slightly ahead of estimates. It was the new customers that grabbed the markets’ attention, as domestic and international figures exceeded estimates by 32% and 8.8% respectively. The stellar growth figures are the driving force behind the stock jumping higher.

Goldman Sachs have been hit my profit-taking after the Wall Street titan revealed a solid set of first-quarter results. EPS and revenue and both comfortably topped analysts’ estimates. Equity trading revenue jumped to its highest level in three years. An increase in initial public offerings and lending added to the higher profits.

The US posted some solid housing data today, as housing starts and building permits both rose on the month, and topped analysts’ expectations. The figures are still below the January reports – which were at pre-credit crisis highs. This paints a picture of a robust US economy.

FX

GBP/USD is a touch softer despite the robust unemployment and earnings figures from the UK. The unemployment rate fell from 4.3% to 4.2% – its lowest level in since 1975. The monthly average earnings figure climbed to 2.8%. The earnings growth rate is now exceeding the inflation rate, and this should take some of the pressure off the British consumer.

Sterling has gained ground versus the US dollar in the previous seven sessions, so a bit of profit-taking is to be expected. The solid figures from the UK today will keep the hawks happy, as there is speculation the Bank of England will increase interest rates next month.

EUR/USD has come under pressure after the German ZEW economic sentiment indicator swung to -8.2 in April, the lowest reading in over five years. The report highlights the slide in economic sentiment in the largest economy in the eurozone. Germany is a major exporter, and all the background talk of a trade war has made investors anxious. The currency pair has been trading within a tight range recently, but while it holds above the April lows of 1.2215, its outlook is likely to remain positive.

Commodities

Gold is a touch lower today on the back of the firmer US dollar. The metal continues to be dragged around by the greenback. Gold hasn’t spent too much time away from the $1,340 mark recently, and we haven’t seen any signs of the market breaking out of its range. To a lesser extent, the risk-on attitude of traders is also keeping pressure on the asset, which often benefits from safe-haven plays.

WTI and Brent Crude have witnessed relatively low volatility today. The oil market has pulled back from its multi-year high, but traders are still nervous about the political situation in the Middle East. Heightened tensions between Saudi Arabia and Yemen are still playing on traders’ minds, and given the oil markets’ strong upward trend, pullbacks may entice fresh buyers.

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