Financial market research and analysis

Price action in equity markets was a little muted given that it was a public holiday in much of Europe. An upbeat tone following Federal Reserve meeting minutes was turned a little sour by OPEC. Shares on Spain’s IBEX index were outperformers after the country’s growth accelerated by 0.8% at the start of 2017; making it Europe’s fastest growing economy.

Traders had half an eye on the US President’s visit to Brussels. The Donald has been toing the official line on his first overseas trip, leaving little room for market-moving surprises. Trump’s call for higher military spending among other NATO members is an outspoken comment that has received universal support.

OPEC extends and pretends

Oil traders reacted to a well-telegraphed nine-month extension to the current output cuts from OPEC by taking profits. The mini crash in oil prices this month forced OPEC to pre-announce the plans so the announcement itself was a foregone conclusion. We said in our commentary May 15 that “An output extension has been widely expected so oil markets remain at risk of another crisis in confidence.”

Tellingly oil prices have not fully recovered the highs reached after the supply cuts were announced last November. The persistently high US oil production has added scepticism in the market that wasn’t there at the last OPEC meeting. We see a better than 50/50 chance OPEC pre-announces additional cuts before the next scheduled meeting in November.

FTSE weighed down by Oil & Gas

The FTSE 100 received a short-lived shot in the arm from soft first quarter UK GDP data which sent the pound lower, boosting the value of foreign company earnings. A downturn in the heavily-weighted oil and gas shares following the OPEC announcement was the difference-maker. The FTSE 350 oil and gas sector was at one point down by over 1% on the day. Shares of EasyJet took off for a seventh straight day of gains

US stocks opened higher, building on record highs made on Wednesday. Shares of Best Buy soared double digits on sales boosted by the new Nintendo Switch console.

Pounded by soft UK GDP

The British pound suffered another setback near the critical 1.30 level against the buck after final Q1 UK GDP data indicated a dramatic growth slowdown in the first quarter. The 0.2% expansion came short of previous estimates of 0.3%, well down on the 0.7% in the fourth quarter of 2016. The slowest household spending in three years as well as a fall in exports were a significant drag. Some solace can be taken from signs of a seasonal effect whereby the first quarter has been poor for the last three years. We think any resulting softness in Sterling will be short-lived as long as the politics trumps economics in the run up to the general election.

Dollar firms in wake of minutes

Federal Reserve minutes kept a June rate hike on the table but showed no rush to normalise the QE-bloated balance sheet. Another rate hike beyonf June was questioned by the suggestion it is “prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory”. The dollar’s outlook is clouded because it’s still unclear if the Fed will halt rate-increases as it unwinds the balance sheet.

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