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With London markets closed for a bank holiday, European shares rose in below-average volumes. A rally in the US dollar entering its fourth week has come to the aid of the shares of European exporters that benefit from a weaker euro. Equity investors are brushing aside concern over the longevity of the Iran nuclear deal, instead focusing on the benefit of higher oil prices for energy firms.
WTI crude oil rose back above $70 per barrel for the first time since November 2014 in reaction to the possibility of lower oil exports from Iran. We think a majority of the oil price gain during the last month hinges on the Iran deal. All the latest reports seem to indicate Donald Trump, supported by Israel, wants to can the current arrangement with Iran. We tend to think the deal is dead in its current form- but a renegotiation of sorts is still possible. Any talk of an Iran nuclear deal 2.0 could put a top in the oil price.
Another round of soft Eurozone data, this time a surprise decline in German factory orders for March, saw the euro drop against most major currencies CFTC data has shown positioning is still very bullish euro despite the recent declines. If shorts still have not been squeezed, this dollar rally might have only just gotten started.
France’s CAC-40 underperformed as shares of Air-France-KLM dropped 10% upon the news of the resignation of the airline’s CEO. Unions rejecting his pay deal means Jean-Marc Janaillac has failed to get the job done on soothing labour relations. And as he promised he has stepped aside to give somebody else a shot. We are not hopeful his successor will have much more luck. The choice is binary for the airline’s next boss; pay higher wages or face more revenue-destroying strikes and flight cancellations.
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