Financial market research and analysis

Markets gun-shy after oil decline

The slide in oil prices has made investors a little gun-shy. Oil and gas shares have been a weight around the neck of otherwise optimistic stock markets. It’s been a good week for stocks with Europe buoyed by an improved growth outlook and technology stocks are generating huge returns in the US. It’s a battle between two competing market forces; technology growth on the one hand and low energy prices on the other. Incidentally, Alfa financial group was valued at just short of £1bn in the largest tech IPO in the UK since 2015.

FTSE back in business

The UK bucked the trend of a sluggish finish to the week with stocks bid up before the long holiday weekend. The FTSE 100 notched up a fresh record high, mostly thanks to a fall in Sterling. The prospect of currency-enhanced foreign earnings is outstripping the political uncertainty.

Publishing giant Informa was top riser on the day with Randgold also in contention thanks to a breakout in gold prices. RBS was dragging banking shares lower after shareholders refused to settle a legal claim against the bank. Settlement doesn’t seem to be a consideration for some shareholders who want executives brought to justice. It’s a rare kind activism where investors’ and taxpayer’s interests are aligned.

Pound 2-month low vs euro

The script has been flipped on UK and European political uncertainty again. This time is to the benefit of the euro against the pound. EUR/GBP broke above 0.87 to reach an 11-week high. The pound has been looking toppy as election odds narrowed since the release of the manifestos. The latest polls from YouGov showed the Tories with only a five-point lead over Labour. A five point gap looks to have been the breaking point.

Polls are indicating a real chance of another hung parliament in the UK but it’s as if the French election never happened. In an indication of the political relief on the mainland - as of Friday, the yields on benchmark French government debt were back to where they started the year.

Given the propensity of polls to get it wrong in recent British votes; five points is as good as even. The poll caught us off-guard, and seemingly a few other market participants. Our assumption was that the Manchester bombing would have edged voters back towards the traditionally more ‘law and order’ Tories. Adding to the bad blood, the IFS said both parties have failed to set out honest set of choices on the economy.

Gold and dollar rise together

US first quarter growth was revised higher to 1.2%, helping bring about some dollar strength to end the week. The euro and the pound have been struggling at some big technical levels and a likely June rate hike is renewing interest in the dollar. At the same time, in a showing of relative strength, gold has taken out the key $1260 per oz pivot level and looks set for higher prices. We’ve already seen that Brexit can impact gold prices so rekindled political uncertainty around the UK election is one factor behind the yellow metal’s resilience.

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