The week in markets – May 17th

by May 17, 2017

The market view

Major stock market indices including the S&P500 and FTSE100 smashed records on Monday, helped by impressive gains in energy, mining and tech stocks. The reason for the upswing was down to two reasons – firstly a significant jump in the price of oil which came after Russian and Saudi Arabian energy ministers announced they would be extending a production cut until 2018.

Brent Crude eventually peaked at over $52 a barrel after the news had broken, representing a more bullish view from investors after a subdued start to the month which saw the price fall to $48. The other key driving force was a move into tech stocks, after concerns about last weeks global malware attacks caused investors to reassess the importance of cyber security which many major tech firms specialise in. 

Though it was not all good news, particularly for stateside investors, and a divergence between the possible future directions of the Eurozone and US economy became starkly clear earlier this week. Though tensions on the Korean Peninsula may have cooled slightly since Vice President Mike Pence visited South Korea several weeks ago, the young rogue leader of the communist country shows little sign of wanting to deescalate tensions – and this is bad news for markets.

Uncertainty due to the possibility of a conflict in Asia, as well as ongoing political gaffes by Trump, (including him sharing classified information with Russian Foreign Minister Sergey Lavrov) are just a couple of the concerns which might be contributing to investor nervousness as of late. invstr CEO and Founder Kerim Derhalli gave his thoughts, saying:

“I feel as if we might be getting close to a major top in the S&p500. The reasons are twofold, firstly North Korea’s latest missile launch represents an ongoing possibility of military confrontation. Secondly, though US indexes are still buoyant right now, the fact is that markets already priced in the good news about Trump. We have to remember that investors bet on the fact that the economy would benefit from his tax reforms and infrastructure spending, but we haven’t got either at the moment – all we do have is major political risk.”

Speaking of risk, if a key gauge of volatility known as the VIX index is anything to go by, investors are not as worried as one might assume given everything thats happening. The index is at a major low, implying that fears are lower than might be expected. Last week it fell to it’s lowest level since 1993, back when Bill Clinton sat in the Oval Office.

Across the pond, the Euro made considerable moves upward this week. This recovery was helped particularly by relief over the French election victory for Emmanuel Macron as well as other good Eurozone economic data.

Is the single currency back in fashion? Kerim Derhalli added, “We are starting to see early signs of an emergence of the Euro vs the Dollar – this might be an indication that people are getting concerned with what’s happening in the US. The fact that people have been buying bitcoin rather than Dollars also implies a lack of confidence.”

In contrast to a weaker US Dollar, The Euro’s bumper week saw it rallying against a basket of major currencies including the Pound Sterling, which continued to slide this week after new data released on Monday showed that UK inflation went up more than economists anticipated last month. An increase in air fares and retail goods put pressure on the currency, causing it to slip further ahead of the general election next month.

Events to watch this week

  • Wednesday – Eurozone consumer price index figures are released, indicating the state of inflation in the Eurozone. Watch #EURUSD, #EURGBP. 
  • Thursday – British retail sales figures will give an indication into how customers are responding to higher prices. This could put pressure on the Pound again. Watch #GBP/USD, #GBP/EUR. 

Company News

  • Easyjet reported a significant loss for the first half of the financial year. Airlines were some of the first casualties as a result of a weaker Pound Sterling after last summers Brexit vote and predictably Easyjet followed suit. 
  • Vodafone also suffered, admitting it had experienced a weak year in the UK. It reported an annual loss of a cool €6.1 billion, due partly to a major fine from Ofcom in the UK and a loss in the value of its Indian business. 

Upcoming Company Results

  • Wednesday – British Land, SSE Group PLC, Brewin Dolphin, Mitchells & Butlers, Cisco Systems. 
  • Thursday – Wal-Mart, 3i, National Grid, Burberry, Booker, Royal Mail, Investec, Thomas Cook, Gap, Alibaba Group.
  • Friday – Foot Locker, Grainger PLC, Campbell Soup Company. 

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