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Markets were left a little unsure which way to turn after an upturn in corporate profits was met with data showing decelerating economic growth.
An early-morning leap in Sterling meant the FTSE 100 was the day’s laggard across European equity benchmarks. Relative weakness in the FTSE 100 vs the FTSE 250 is a theme we would expect to continue thanks to the rebound in the pound. Alleviated tension over the French election has been offering support to European stocks. Political relief propelled the DAX to new highs on but we would expect a resurgent euro to dampen the outlook for Germany’s top exporters.
Mixed reaction to bank profitsThe IT department may be scratched off RBS CEO Ross McEwan’s Christmas card list. The banking app failed on the day RBS reported its first quarterly profit since 2015. Investors sent RBS shares as much as 4% higher before taking profits coinciding with the IT issues. It was probably a good thing for the positive sentiment that there was no new information on the settlement with the US Department of Justice. Barclays doubled profits in Q1 but shares were one of the biggest weights on FTSE 100 thanks to an underwhelming performance at its investment bank.
New Nasdaq record after tech results
US stocks opened tentatively amid concerns of a government shutdown. The Nasdaq opened at a fresh record high after stellar earnings from tech darlings Amazon and Google-parent Alphabet. A strong rebound in the profitability of US oil supermajors Exxon and Chevron is at the crux of the strong Q1 earnings season in the US. Three years of cost-cutting and some stability in the oil price has been the makings of the best quarter since oil prices crashed.
Sterling nonchalant about UK growth
The British economy is decelerating amid a consumption slowdown but 2.1% growth is hardly cause for alarm. Sterling hardly moved on the data because a modest slowdown is already priced in. Both the pound and the euro have broken out above significant resistance levels this week as election fever boosts sentiment. Levels of 1.30 in GBPUSD and 1.10 in EURUSD are key. The US dollar gained ground despite data showing the slowest growth since 2014.
Major, major conflict supports gold
The rising risk of a war between the US and North Korea is keeping gold well bid. Whether gold holds above $1260 per oz will depend on next week’s Federal Reserve meeting but the situation in the Korean peninsula should keep a floor under it. Crude oil steadied after its late rebound on Thursday. Hints there could be an early announcement that OPEC will extend its output cuts has halted the sell-off but rising US inventories has seen oil bulls running out of patience.
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