Stocks
Global markets meandered higher on Friday as anxiety about a summer rate hike in the US eased. Investors were keeping half an eye on the G7 meeting in Japan in the unlikely event that finance ministers put differences aside for a coordinated effort to revive global growth.
The meeting of G7 finance ministers comes ahead of the leaders’ summit next week where any significant policy change would be announced. Infighting over FX intervention and a difference in political attitudes towards austerity will likely mean inaction from the G7. The political will for a unified response to sluggish global growth is not strong enough to outweigh national interests.
Healthcare stocks led gains on the FTSE 100 and the Euro Stoxx 600 amid broker upgrades to firms in the sector. Strong gains from miners and other commodity-linked shares wilted in the afternoon, matching similar moves in the price of oil. Travel and leisure stocks pared some of yesterday’s losses as rescuers found debris from the missing Egyptian airliner.
Coca Cola HBC (LON:CCH) was top gainer on the FTSE 100, gaining 7% after a broker upgrade amid reports that Coca-Cola was suspending production in Venezuela after running out of sugar.
Tobacco companies brushed off the first day of enforcement of the new plain packaging and vaping laws. Shares of British American Tobacco (LON:BATS) and Imperial Brands (LON:IMB) both saw gains in excess of 1%.
US stocks opened higher as concerns eased over a potential Fed move to raise rates in June.
Yahoo (NASDAQ:YHOO) shares fell after reports the company was considering bids for its core internet business of around $2bn, far less than original estimates of as much as $10bn.
Shares of Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) brushed off proposals for new European quotas to be announced next week. Under new proposals, at least 20% of content needs to be European on services offered in Europe.
Shares of Deere (NYSE:DE) dipped after the company warned on the effects of a global downturn on the farm economy, though the equipment-maker did beat earnings and revenue estimates in the first quarter.
FX
With little in the way of economic data, profit-taking saw most FX markets give back some of the recent moves with the US dollar seeing some late strength after well-received housing data.
A new letter from British entertainment stars backing Britain remaining in the EU has unsurprisingly had minimal impact on markets. It’s probably fair to say traders are ignoring the latest celebrity intervention on the Brexit debate.
Of greater import for the UK economy and the British pound were comments from the BOE’s Kristin Forbes suggesting the slowdown in the UK economy may not be all Brexit related. This comes on top of comments from Jan Vlieghe that further easing was possible if growth remains sluggish even with a Remain vote in the referendum. The British pound was due a pullback at the end of its best week in ten months.
The euro gained some ground on Friday after European central bankers reiterated a need for patience in waiting for the latest policy measures to take effect. The ECB is making its stance quite clear that rates could go further into the negative but are unlikely to do so anytime soon. Policymakers appears wary that cutting rates further into the negative increase the risk of counterproductive effects.
The yen fell to a 16-day low versus the dollar. Investors remain wary of possible intervention from the Bank of Japan. Jack Lew, US Treasury secretary saying that recent yen moves have been “orderly” gives the BOJ less room for manoeuvre.
Commodities
The price of oil fluctuated on Friday as traders grappled with a moderation in dollar strength and the looming $50 per barrel mark in the Brent contract. This week the surprise build in weekly oil inventories was offset by lower US production so the short-term weakness in oil has largely been as a result of dollar strength. With the US dollar now pairing gains, Brent crude can have another run at the psychologically significant price of $50 per barrel.
The price of gold edged higher on Friday after rebounding from below $1250 per oz. A new era of dollar strength poses significant risk to gold’s upside but if that same dollar strength translates to a bearish turn in equities, gold could get bid as a haven.
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