Markets softened at the beginning of what could be a game-changer of a week in politics and monetary policy. Last week’s soft US jobs report, another terror attack in London in the run up to the UK election and volatile oil prices all played a role in the downbeat tone.
Polls noble the FTSE
A jump in the value of Sterling on signs Conservatives were pulling away in the polls hurt investor sentiment toward big UK-listed multinationals. Mining firms which make the bulk of their earnings in foreign currencies were the biggest drag. Shares of RSA Insurance fell over 1% as it announced plans for a European head office in Brussels while fellow insurer Old Mutual topped Britain’s benchmark index.
An underperformance of travel & leisure stocks was a distinct reaction to the terror attack on London Bridge. Shares of EasyJet and BA-owner IAG as well as Merlin Entertainments and Carnival were amongst the worst-performers on the FTSE 100 on Monday. The negative reaction reverses the recent trend of less market-impact after each terror attack.
Ocado: a licence to print money?
On the FTSE 250, shares of Ocado hit a 13-month high after announcing a licensing deal for its software to a business in Europe. The benefit of being a first mover in online grocery delivery is starting to pay-off for Ocado. Licensing is not only high-margin but it could allow Ocado to diversify its revenue streams away from the intense price competition of the supermarket business.
US stocks open lower
Stocks on Wall Street opened marginally lower on Monday, backtracking from record highs in line with the weakness in European trading. While all eyes in Europe are on the UK election, the US isn’t without its own political risk ahead of the Congressional testimony of former FBI Director James Comey. Comey’s memo was responsible for the last spark of volatility in markets so his testimony is one to watch.
Pound in poll position
Polls are all over the shot but the markets clearly liked what they saw as the pound strengthened against the euro and the dollar. A Survation poll has the Conservatives at 40% and Labour at 39% but equally an ICM poll has the two parties with a 11 point gap. If the Tories spring a poll turnaround just as we hit the election home straight, traders may well start to bid up Sterling as their confidence in the result grows.
The gains came in spite of an unexpected cooldown in Services economy in May. Be careful what you wish for; a rebalancing from services to manufacturing will come with a period of difficult readjustment. The disappointing UK data contrasts with a resurgent Eurozone, where activity remained ear a 6-year high.
Oil rises and falls on Qatar
Oil prices bounced early on Monday after four Arab counties led by Saudi Arabia cut diplomatic ties with OPEC oil producer Qatar. The gains didn’t last long. The traditional reaction to geopolitical tensions in the Middle East is to send oil prices higher on possible supply disruption. But the greater disruption in current market conditions could come from a disruption of the OPEC deal to cut output. Any chance of Qatar unravelling the OPEC deal is a downward pressure on prices. Gold struck a at 5-week high of $1280 per oz, building on its gains after the weak NFP data last week.
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