Financial market research and analysis

Jitters ease but stocks little changed

It was another jittery day for stock markets. Investors have been juggling multiple sets of corporate results while staying mindful of global geopolitics. That makes a strong directional move difficult.

The risk surrounding the first round of France’s Presidential election this Sunday have been keeping investors cautious but there were signs of the caution abating. France’s CAC index was top European gainer, led by banks BNP Paribas and Societe Generale. In Germany BMW beat profit expectations with double digit sales growth and 27% rise in pre-tax profits.

A mixed bag of corporate results kept the FTSE 100 near breakeven and still in negative territory for the year after its snap-election slump. The lesson for UK investors this week has been that currency-related gains are easy come easy go.

US stocks opened lower amid talk of a possible government shutdown. Investors remain concerned that Donald Trump’s tax and spending plans are getting derailed by foreign affairs. House speaker Paul Ryan saying he sees a long battle over tax reform is a reality many ‘reflation’-inspired investors are loathe to face up to.

Debenhams shares get Sergio Butchered

UK clothing retailers were under the cosh. The announcements of store closures from M&S and Debenhams were met with cold distain in markets. Debenhams new turnaround plan led by Amazon-man Sergio focused on the “social” side of shopping sounds nice but execution will be complicated.

Debenhams will close 10 out of its 176 stores as well as some warehouses, meaning job losses. Markets typically react favourably to job cuts so the lack of confidence in the Debenhams turnaround is particularly acute. Supermarkets shares also fell on Wednesday. The Debenhams wave of disappointment sunk all retail ships.

£70k-earner tax hit helps Sterling

Sterling rebounded on Thursday with GBP/USD back above 1.28. Talk of a tax hike on middle class earnings by Labour are reminiscent of the party’s disastrous 1983 manifesto that saw Margaret Thatcher stampede to victory. Brexit negotiations seem to have been side-lined by the French and now British elections. The absence of Brexit in the mind set of forex traders can only be a positive for Sterling.

Greece can kicked again

A one year bailout for Greece helped EUR/USD extend this week’s gains beyond 1.075. The deal is a thinly veiled can-kicking exercise by Europe to delay the ‘Greece problem’ until after German elections later this year.

The easing of political fears in France and Britain and the Fed’s Kaplan saying he sees three rates rises this year as a good baseline saw the Japanese yen weaken against the dollar. USD/JPY hit a one-week high above 109.

OPEC promises ease oil pain

A modest rebound in crude oil after Wednesday’s plunge gave way by Thursday afternoon. Oil ministers from Saudi Arabia to Kuwait to Oman came out in a conveniently unified voice for the OPEC cuts to be extended. That decision will be made at the May 25 OPEC meeting. Oman’s oil minister said ‘many’ countries would like to see cuts extended. With US output rising, OPEC hasn’t quite done enough to reduce the supply-glut. We expect an extension to be announced.

Safe havens like gold saw some gains on Thursday on chatter about a possible US government shutdown. Gold has been consolidating under $1300 per oz as protection from any fallout from the French presidential election.

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