Weekly Market Update


It may have been a declining week for broad commodities, but elsewhere markets moved ahead. The French elections are now behind us with centrist candidate Emmanuel Macron defeating far-right candidate Marine Le Pen by some margin. The cyclical upswing continues while volatility hits its lowest level in a decade.

In the medium-term, one would expect this victory to be reflected in a strengthening of the euro, and further equity gains, especially for the financial and cyclical sectors. The focus in the eurozone will now likely shift away from politics and move on to the central bank. With a political agenda that should remain relatively light for a few months, the ECB’s meeting on 8th June will probably offer some insights on the key subject of QE stimulus withdrawal.

Elsewhere, figures indicated that growth in the Eurozone accelerated in the first quarter delivering 0.5 per cent growth. Political risks remain the main threat to growth, and could subdue the expansion in the future. However, for now, the data paint a picture of reassuringly solid-looking economic upturn. Unemployment is at its lowest level for seven years, while recent indicators of business and consumer confidence have hit multi-year highs.

The commodity sector experienced further downward pressure with worries building over high US oil stockpiles, with shale companies drilling more rapidly, while demand concerns appeared to escalate following China’s tightening crackdown on credit in recent months.

Growth in the UK’s manufacturing sector unexpectedly rebounded in April, as PMI data for the sector reached a 3-year high. Buoyant global markets and a weak pound boosted exporters, with the relatively low price of UK goods leading to higher demand from overseas clients. However, sterling’s weakness also drove up cost pressures, with purchase price inflation remaining above its long-run average.

Turning to the US, the Federal Reserve left interest rates unchanged, while US jobs growth staged a bigger recovery than expected. Businesses added 211,000 jobs in April, while the unemployment rate dropped slightly to 4.4 per cent. The rebound in job numbers adds ammunition for the central bank to raise interest rates in June. Average hourly earnings also rose by 2.5 per cent year-on-year, although this was down slightly on March’s figure, but demonstrates that real wages are growing in the US unlike the UK which is witnessing negative real wage growth following sterling weakness.

Investors expect a US hike in June, even after relatively soft GDP figures in the first three months of the year. The central bank has commented that economic weakness in the first quarter of 2017 was probably temporary and still expected economic activity to expand at a moderate pace.

In politics, Donald Trump secured his first significant legislative win as President. His new healthcare bill, which repeals the so-called Obamacare Act, was narrowly approved by Congress, and will now go in front of the Senate.

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