Financial market research and analysis

Winning streak snapped

Stocks snapped a seven-day winning streak as increased odds of a US interest rate hike in March curtailed enthusiasm for Trump-led tax cuts.

Record highs in UK, US and global stock market indices were all signs of some short-term over exuberance. The Dow Jones, the FTSE 250 and the MSCI All Country World index all clocked up record highs on Wednesday.

If investors were looking for signals of extreme sentiment, perhaps they needn’t look any further than the US President himself. Trump tweeted about the confidence and optimism behind the new high in the stock market on Thursday, perhaps incidentally calling a short-term top in doing so.

Pharma top and tail, airlines up

AstraZeneca, BP and Imperial brands going Ex-div were the difference-makers for a listless FTSE 100. Pharma stocks top and tailed the UK equity benchmark. Shire was a top riser after reporting a rise in profits bolstered by its acquisition of Baxalta while AstraZeneca was biggest faller after going Ex-div. Coca-Cola HBC was a top riser after well-received results.

Shares of IAG gained thanks to reports of better-than-expected industry profits. Rival Air France / KLM reported operating profits of €1.05bn. Evidence is starting to mount, judging by Air France results Thursday and TUI results on Wednesday that passengers have not been terrorised out of travelling. Muslim-majority destinations like and Egypt and Turkey have seen lower bookings but overall holiday demand looks resilient. As a side note, Wizz Air expanding into Luton airport speaks to confidence in the airline industry.

Snapping at the heels

With US stocks opening flat, attention shifted to what could be the hottest new listing this year. Snap, the owner of the Snapchat app has priced shares at $14-$16 for its IPO, giving the company a valuation of $19.5bn - $22.2bn. It’s the first major social media IPO since Twitter and the largest tech debut since Alibaba floated in 2014.

The valuation for what is basically a smartphone messaging app looks eye-watering on first glance but if Snapchat can grab even a slither of Facebook and Google’s ad revenue it might be worth it. As a reminder, Facebook bought WhatsApp for $19bn in 2014. Even if it’s not worth the price tag, Snap stands to do well anyway because investors have been so starved of high-growth potential IPOs. ‘Unicorns’ (tech start-ups valued over $1bn) like Uber and Airbnb have opted to stay private, limiting the supply of publicly investable firms.

USD dips with Stanley Fischer comments

Odds of a US rate rise have improved to about 50/50 since Fed Chair Janet Yellen’s testimony to congress. Nonetheless, the US dollar looks a little top heavy and has rolled over in the past two days. Vice Chair Stanley Fischer was on the wires on Thursday, stating the US economy is headed toward the Fed’s 2% target. US rate-setters haven’t quite dispelled the idea that they are in wait-and-see mode over Trump’s fiscal plans. So far so 2016; the Fed hikes in December, skips March, market volatility spoils plans to go in June, there are elections in Autumn and another year has gone by.

OPEC rumours prompt oil spike

Rumours that OPEC will cut output again at its next meeting spurred a jump in the oil price on Thursday. The OPEC rumour mill conveniently started spinning after data showed US stockpiles hit new records this week, raising supply glut concerns. Investors are positioned for the next push higher in oil, but at the moment that is the problem. Another drop below $50 per barrel may be needed to flush out the week oil longs.

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