It will most likely be a slow start to the week with markets closed for Memorial Day in the US and the Spring Bank holiday in the UK on Monday.
Stocks
Markets in China were also closed, leading to lower than average volumes across the rest of the Asian continent. Shares on Japan’s Nikkei index got a lift after the yen reversed early gains, boosting the value of the country’s big exporters. Shares in Europe look set for a higher open on low volume. US equity futures are little changed. The FTSE 100 looks well-placed to build on its records move above 7500 this week if last week’s wobble in the pound picks up steam.
The old adage of “sell in May and go away” hasn’t worked out too well. Global stocks have now been rallying for six weeks. US stock markets completely unwound the sell-off that occurred after the leaked memo from FBI Director Comey. The S&P 500 and the Nasdaq both notched up record highs last week. Dip-buyers won out again!
The coming week will be dominated by PMIs and US nonfarm payrolls on Friday. Traders may be placing extra emphasis on PMIs from China after Moody’s downgraded the countries sovereign debt rating for the first time in 30 years. Strong US job gains are expected in May after 211k last month.
FTSE closed
DAX set to open 9 points higher at 12,611
CAC set to open 3 points higher at 5,339
FX
The US dollar reversed early losses on Monday after a speech from San Francisco Federal Reserve President John Williams put another rate hike beyond June back on the table. Williams’ emphasis on the dual mandate seems to be another attempt by a Fed member to put the dismal Q1 growth figures to one side. The USD flagged last week when Federal Reserve meeting minutes signalled a June rate hike was on but was less clear about another one this year. Investors seem fairly calm about the Fed’s plan for a ‘gradual’ reduction in its balance sheet which was bloated by bonds bought under the QE program.
The euro looks slightly softer before the ECB’s Mario Draghi testifies to the European parliament on Monday. The ECB is clearly concerned about the European version of a taper tantrum in markets if it was to signal the beginning of the end of the central bank’s asset purchase program. For that reason Draghi is likely to continue to question the sustainability of inflation before lawmakers.
Sterling could be in for some gyrations in what is the last full week of campaigning for the UK general election. Given the tightening of the polls, both main parties will feel it is all to play for.
Commodities
Oil was slightly lower in Asian trade on Monday, with crude erasing some its 1.8% gains from Friday. Oil bulls returned en masse according to CFTC data ahead of the OPEC meeting. Given the sharp slide after the announcement of further cuts, it’s not certain they’ll stick around. Now that the OPEC meeting has come and gone, oil prices will likely once again be determined by global inventory levels and how quickly the supply glut can be erased. The price of gold dipped slightly on Monday following a potentially significant break of the $1260 per oz barrier last week.
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