UK and Europe
A jump in the price oil and the end of a five-day surge in the Japanese yen has prompted relief across global stock markets. Friday’s gains leave the FTSE 100 up on the week but still essentially flat for the last five weeks, trapped in a tight 150 point range.
The recovery in risk appetite on Friday that has seen funds flow out of bonds and back into equities can almost exclusively be laid at the feet of a rebound in the oil price. This puts the recovery on risky ground given the absence of confidence that producers can reach agreement at next week’s meeting in Doha.
The drop in the yen is at the margins a source of relief for those equity investors aware of the strong historical correlation between USD/JPY and the S&P 500. The correlation is broken at the moment since the S&P has remained near its highs whilst the yen has appreciated. For the two markets to come back into line; the yen needs to snap back or stocks need to fall further.
Gains on the FTSE 100 were being led by oil and basic resource sectors whilst financial and healthcare stocks reversed fortunes from earlier in the week. A 5%-plus surge in oil prices took shares of Royal Dutch Shell (LON:RDSa) higher by as much as 3.5% whilst Anglo American (LON:AAL) nearly saw another day of double-digit gains.
Bank shares recovered from losses induced by ECB minutes that rekindled concern of negative interest rates after ECB President Mario Draghi said the central bank would act as an “anchor of confidence.”
The healthcare sector is seeing some profit-taking after a strong week that saw investors switch out of Allergan (NYSE:AGN) and into other UK-listed companies in the hopes of benefiting from future mergers.
Shares of Experian (LON:EXPN) were propping up the UK benchmark after concerns over its exposure to Brazil prompted a broker downgrade.
US
A rebound in global risk sentiment alongside the price of oil and warnings from Japanese officials that have helped some temporary respite in yen-buying helped US markets trade higher.
Gains in the US were broad-based led by oil and resources but shared by tech and industrial shares. The retail sector was the notable loser after shares of Gap (NYSE:GPS) dropped a whopping 12% after disappointing sales numbers. Investors are clearly twitchy on results ahead of Q1 earnings season.
Yahoo! (NASDAQ:YHOO) shares have been active as a number of prominent US companies line up as potential bidders including Verizon (NYSE:VZ) and Google (NASDAQ:GOOGL).
FX
Any weakness in the US dollar on Friday can mostly be explained by the rise in the price of oil which helped commodity currencies including the Canadian dollar gain ground.
The greenback rebounded against the yen as traders reeled back on USD/JPY shorts, snapping a five-day losing streak. The Japanese finance ministry has said it is willing to take steps as needed on the “one-sided” yen moves, helping the currency reverse some its 400pip gains this week.
Commodities
A surprise draw in weekly US oil inventories has a produced a short-squeeze in oil prices which looked at risk of another downturn as expectations have dropped for any meaningful outcome from the producers meeting in Doha. There appears to be a lack of conviction to sell ahead of next week’s producer meeting in case somehow Saudi Arabia and Russia can pull an output freeze out of the hat.
DISCLAIMER: CMC Markets is an execution only 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.