It was cautious trading across Europe ahead of the release of minutes from the March Federal Reserve meeting. A jump in the price of oil and surprisingly positive service sector data from China went some way to alleviate concerns that have dragged stocks to a three-week low.
The FOMC minutes are often stale given the two-week lag but speculation of a rift between policymakers has increased the importance of the release in April. Strength in the euro, mostly because of dollar weakness has been a thorn in the side of European markets so a lot hangs on how the Fed communicates.
It was a leap in the healthcare sector that distinguished the FTSE 100 from other European indices.
The termination of the Allergan Plc (NYSE:AGN)-Pfizer merger has has counter-intuitively sparked buying in other UK and Irish pharmaceutical groups. Speculation that Pfizer (NYSE:PFE) will look for another partner in its quest to relocate its headquarters and lower its tax burden has sent the shares of Shire (LON:SHP) and AstraZeneca (LON:AZN) flying.
Shares of Swedish multinational clothing giant H&M gained over 5% after well-received earnings. Sluggish sales were naturally blamed on the weather and an early Easter. The bigger issue for H&M is its strategy of sourcing its clothes in Asia where currencies are pegged to a strong dollar when competitors like Zara-owner Inditex (MC:ITX) buy within Europe.
Glencore (LON:GLEN) shares gave up initial gains on the news it will offload a big stake in its agricultural business. The more assets Glencore disposes of, the more shareholders will begin to weigh up the benefits to the balance sheet versus the negatives of lost future revenue.
US
A rebound in the price of oil helped offset the derailment of the Pfizer-Allergan and Halliburton-Baker Hughes mergers and the political uncertainty in the presidential race as stocks traded flat ahead of Fed minutes.
Mergers appear to be coming undone by the day. The US justice department has filed a suit to stop the Halliburton (NYSE:HAL) - Baker Hughes (NYSE:BHI) deal which would have created the world’s largest oil-services company.
Underdogs Ted Cruz and Bernie Sanders upset frontrunners Hilary Clinton and Donald Trump with primary victories in Wisconsin. Markets appear to be ignoring election uncertainty for now since Americans failing to rally behind one of the Republican candidates only increases the chances of victory for establishment candidate Hilary Clinton.
FX
The Japanese yen has continued to gain ground across the board hitting multi week highs against its major peers after the Japanese Prime Minister said that countries should avoid weakening their currencies with arbitrary intervention. Despite these comments FX markets appear to be a little nervous about the prospect of possible intervention by the Bank of Japan in the wake of recent yen gains. While this seems sensible from a historical point of view, the yen is still relatively weak when compared to its levels in 2012 and the Bank of Japan has generally tended to adopt a conservative approach to intervention only intervening to slow a move down if it has moved too quickly. With that in mind talk of intervention seems premature, but that might change if we fall below the 106.00 level against the US dollar.
Continued bearish sentiment towards the pound has seen further weakness today with the pound sliding to levels last seen in June 2014 against the euro as nervous traders continue to fret about political uncertainty surrounding Brexit. Traders are also awaiting the release of the latest minutes from the March FOMC meeting which could prompt a positive US dollar response in the wake of their release.
Commodities
The price of crude gained for a second day after DOE data confirmed the draw in US weekly oil inventories reported yesterday by the API. The decline in US oil stockpiles has reduced concerns of a supply-glut and shifted focus away from the upcoming producer meeting.
After having failed to sustain gains above $1230 per oz, gold dropped sharply ahead of FOMC minutes.
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