Financial market research and analysis

A fading Trump fade

It would appear the ‘Trump fade trade’ is fading back to the ‘Trump trade’. European markets edged up while Wall Street opened slightly higher on Tuesday despite the shock of the terror attack in Manchester. Strong European economic data, the oil price recovery and the distraction Donald Trump’s Middle East tour have tempted investors back into stocks.

It’s perhaps not surprising to see the latest Trump slump become another buy-the-dip opportunity. The Donald’s first budget landing on lawmakers’ desks on Tuesday is a reminder that while a special prosecutor is a hindrance to the pro-growth agenda, work is still being done. 

FTSE 100 upgrades

A number of broker rating upgrades and a well-received update from Severn Trent helped the FTSE 100 regain the 7500 handle. Babcock International, EasyJet and ABF were toper risers as investors bought into broker upgrades. Severn Trent led gains in utility company shares after announcing plans to raise its dividend over the next three years.

Severn Trent’s confident outlook is a relief in the context of political pressure mounting on energy firms. Utilities have been one of the few stock market sectors badly affected by the general election because of Conservative plans to cap home energy bills and Labour’s focus on renationalisation. 

Sterling sticky at 1.30

Data showing a larger than expected UK budget deficit in April weighed on the British pound and set back attempts by GBPUSD to move beyond 1.30. The narrowing of the polls, talk of quitting Brexit talks and the Tory social care U-turn have given currency traders pause for thought.

Euro getting overextended

The euro set a fresh six-month high before fading later in the day. The latest in a string of much-improved European economic data wasn’t enough to sustain the euro in a sign the currency may be getting a little over-extended in the short-term. German business confidence hit a new record in May according to the IFO while PMI data from France and Germany remained strong.

EURUSD is approaching pre-US election levels after the dollar had its worst week in 9 months so technical pullback would make sense. But longer term the euro seems to have turned a corner. All indications are that Europe is set to out-grow the US in the second quarter, which beggars the question why the ECB is still easing monetary policy while the US is tightening. On current trend the ECB and the Fed should, if anything, switch policies.

Crude oil rebound

Oil markets wobbled after Donald Trump’s budget proposed selling half of the US strategic petroleum reserve. The US government dumping oil onto an already over-supplied market would complicate the expected benefits from OPEC’s supply cuts. Crude gained a firmer footing in the afternoon with news that Iraq, one of the early critics of extended cuts is on board for the next nine months.

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