Eurozone Euphoria: More Micron Than Macron?

Europe

European markets appear to be consolidating their Macron bounce with the FTSE 250 making yet another record peak, helped by a decent performance from oilfield services provider Weir Group PLC (LON:WEIR) on the back of a broker upgrade by JP Morgan, while speciality chemicals group Elementis (LON:ELM) headed back towards its 2015 peaks after reporting that it was on track to hit its profit targets across all of its businesses for 2017.

While the DAX also made another record peak the CAC 40 appears to be struggling to push conclusively through the barrier that is the 5,300 level, as investors weigh up whether the potential prospect of an Emmanuel Macron win in the French elections is enough of a reason to push French markets, as well as wider European markets, up to new record and or multi-year highs.

With attention now turning to the effectiveness of the potential new French president, markets are now turning their attention to how effective he is likely to be. Given the political difficulties any new French president is likely to face, there is the prospect that for all the euphoria in the past 48 hours any positive effect could be more micron than Macron.

Banks and financials are also consolidating their recent gains with Royal Bank of Scotland Group PLC (LON:RBS) and Barclays PLC (LON:BARC) helping underpin the FTSE 100.

Mining stocks have had a mixed day with Anglo American PLC (LON:AAL) slipping back after Goldman Sachs (NYSE:GS) cut its outlook on the sector reducing them to “neutral” while cutting BHP Billiton PLC (LON:BLT) and Antofagasta PLC (LON:ANTO) to “sell” and reducing the price targets on all of them. The bank cited a bearish outlook on Iron ore and copper prices which given recent declines in both might be a little after the fact.

It’s been a disappointing day for Premier Inn owner Whitbread (LON:WTB) after the company warned on a tougher customer outlook. The company’s overall numbers were positive with revenues up 8.2% on the year across the group; though revenues per room came in on the soft side, probably as a result of the slowdown in consumer spending seen in the past quarter. In this context the share price reaction does seem overdone particularly since the shares are still well below the valuations seen in 2015.

B&Q owner Kingfisher (LON:KGF), who enjoyed a Macron-inspired bounce yesterday due to its exposure to the French economy by way of its Castorama division also slid back as a sense of realism started to return.

US

US markets continued where they left off yesterday, opening higher ahead of speculation that President Trump will outline plans to cut corporation tax to 15% sometime tomorrow. The NASDAQ Composite also pushed above the 6,000 level to another new record high.

The positive open was also helped by industrial bellwether Caterpillar Inc (NYSE:CAT) reporting Q1 results well above expectations. Profits came in at $1.28c a share, well above expectations of $0.62c a share. Having seen the recent sales numbers maybe this shouldn’t have been a surprise with Asia Pacific showing a rise of 46%, which helped push overall sales to their first rise since the end of 2012.

Coca-Cola (NYSE:KO) is the latest to report its latest Q1 numbers and they fell short on both profits and revenues, with revenues declining 11% to $9.1bn, while profits came in at $0.43c, below an expected $0.44c a share, as a strong US dollar acted as a headwind.

For now the prospect of a trade war with Canada doesn’t appear to be having a significant effect, however having started with lumber the US President appears to be turning his attention to US dairy farmers on the Canadian border.

FX

The pound has held up fairly well today after borrowing figures for 2016 came in line with expectations, at £52bn for the latest fiscal year, which in percentage terms is its lowest level since the financial crisis in 2008, at 2.6% of GDP.

The euro has also drifted higher on reports that the ECB will remain on hold later this week with a possible acknowledgement to the improvement in the European economy likely to prompt a slight change of tone.

The Canadian dollar has come under pressure after the US imposed tariffs on Canadian softwood lumber importers, with the US government accusing the Canadian government of subsidising the industry.

Commodities

Crude oil prices have continued to come under pressure ahead of weekly inventory data as the prospect of a continued rise in US rig counts offsets the prospect that OPEC and non-OPEC members will agree to extend the output freeze when they meet in just over a months’ time. The return of Nigerian output coming back on line isn’t helping to support prices either.

Gold prices have continued to slip back in the wake of this week’s more benign risk environment.

Disclaimer: CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Written By: CMC Markets