Financial market research and analysis

It wasn’t the most glorious of returns from a long weekend in markets. Investors bought up the latest Trump dip but haven’t quite shown the desire to take it any further. Continuing weakness in oil markets after last week’s OPEC meeting doesn’t help – but may also be symptomatic of the shunning of riskier assets.

Italy and Greece up the political risk

After a soft start, European market losses accelerated in the afternoon beset by a weak open on Wall Street and rising political risk. Talk that Italy will spice up Europe’s political landscape again with its own snap election is unsettling the idea that Europe is now free of populist risk in 2017. Former Italian Prime Minister Renzi has suggested Italy could hold simultaneous elections with Germany in September. Not to be left out, Greece may opt out of its next bailout if debt relief deal isn’t struck, adding to the potential for market disruption.

European assets need the three pillars of stronger economic data, higher political risk in the US and reduced political risk in Europe to outperform. Italy and Greece could are holding the sledgehammer that could knock down one of those three pillars.

Tail (plane) risk for the FTSE

It was airline shares providing the tail (plane) risk for the FTSE 100. Shares of British Airways-owner International Airlines Group were initially punished for the weekend disruption to BA flights from a computer glitch. IAG Shares recovered somewhat by the afternoon since although there will be some lost revenue to compensate some passengers, the situation looks contained.

Ryanair posted strong results on Tuesday morning but shares fell. There’s an expectation that persistently falling airfares will bite into future profit margins. Ryanair said average fares will fall 5% to 7% this year. The planned €600 million share buyback may not be sustainable by next year if low airfares eat into the profits wrought by lower fuel prices.  

Euro drops then pops

The euro began the day besieged by political risk and dovish European central bankers but bounced back in style by the afternoon. The bounce came amidst mixed economic data that saw economic growth in France accelerate while inflation moderated in Germany. The inflation in Europe has largely be derived from higher fuel prices, but as oil prices languish that effect becomes less pronounced.

The Paxman bounce

The Jeremy Paxman interviews with PM Theresa May and Opposition leader Jeremy Corbyn offered no standout moments to roil markets (or entertain viewers). Corbyn came across well and sent a clear message that not all of his own political beliefs – such as abolishing the monarchy – are on the Labour Party agenda. There was some sense of disappointment that the Conservatives have jeopardised their popularity by resting on their laurels. The polished, more establishment performance by Jeremey Corbyn may have helped ease concerns about his party leading Brexit negoatiations.

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