UK and Europe
The big two-day rise in stock markets flattened out on Thursday as investors keep half an eye on the first day of the G7 summit in Japan. Brent crude oil surpassing $50 per barrel for the first time in 2016 offered some early support before gains wilted in the afternoon.
A €2.5bn rights issue from Spain’s Banco Popular (LON:0QEU) poked a hole in recent optimism for the banking sector. Demand for bank stocks had been reinvigorated by a debt deal for Greece and a possible Fed rate hike this summer. The Banco Popular capital raising plan is a sober reminder that banks, especially in Europe, still have a lot of problems.
The FTSE 100 was on the backfoot after a second estimate of the UK’s GDP in the first quarter remained at 0.4% q/q. On the FTSE 250, shares of Debenhams (LON:DEB) gained on news it had poached a director from Amazon (NASDAQ:AMZN) as its new CEO.
Besides vague summations that higher US interest rates and can-kicking in Greece are helpful to banks, there’s hasn’t been too much to justify to move higher this week. The risk is that markets rollover under their own weight absent a significant positive catalyst. Japanese Prime Minister Abe’s warning at the G& that the global economy faces another crises on the scale of Lehman Brothers was not it.
US
US stocks opened flat, taking a breather after two days of strong gains and the release of mixed economic data and corporate earnings.
Shares of HP Inc (NYSE:HPQ) rose after first quarter profits beat estimates, however the PC and printer-maker cut its full year outlook owed to ongoing weakness in PC demand. It was an unlucky day for Abercrombie and Fitch (NYSE:ANF); the US clothing chain reported its 13th quarterly fall in sales and shares opened 13% lower.
FX
The US dollar dropped off across the board on Thursday after an initially positive reaction to a strong headline durable goods orders quickly gave way to pessimism over a surprise drop in orders excluding defense and transports.
The Fed’s James Bullard was typically hawkish on prospects for a rate hike. Mr Bullard suggested that neither the Brexit referendum nor US election were factors that will affect the timing of the next rise. Given the Fed’s sensitivity to markets and the possible market gyrations on both events, that is unlikely to be a view shared by all members.
Sterling came off its highs leaving it lower against the euro after UK GDP growth was again seen at a more modest 0.4% q/q growth. The more recent retail sales data suggests individual spending habits haven’t been affected by the Brexit vote. The 0.5% fall in business investment last quarter would imply businesses are being more cautious ahead of the referendum. That caution is sure to have slipped into the current quarter and may well be enough to trigger another slowing of the economy.
The Japanese yen appreciated after US president Obama wagged his finger at Japan’s Abe, pushing back against competitive currency devaluations. The Bank of Japan has said it will only intervene if yen moves become disorderly. The risk of being labelled a currency manipulator by the US could mean the BOJ now has a bigger threshold for what it defines as disorderly.
Commodities
More supply disruption in Nigeria after a militant attack on a pipeline on top of yesterday’s reported drawdown in US oil inventories pushed the price of Brent crude above $50 per barrel for the first time in 2016. Oil later came of its highs as traders took profits at the psychologically significant round number.
Other commodities including gold and copper tracked oil lower in afternoon trading. Concerns that Federal Reserve chair Janet Yellen may corroborate the hawkish Fedspeak since last week’s FOMC minutes in her speech on Friday has triggered some caution.
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