Originally published by CMC Markets
European equity markets are set to finish on a positive note.
Europe
After a few lacklustre sessions this week, equity markets have resumed the positive move that begun in March. The FTSE 100 and DAX have set new multi-month highs, while the CAC 40 has hit a level not seen since 2008.
Shares in Ocado (LON:OCDO) have soared today after the company revealed its partnership with US-based Kroger (NYSE:KR). This is the fourth tie-up that Ocado has announced in six months, which highlights how aggressive their expansion plans are. Kroger will take a 5% stake in the British firm, and in return Ocado will gain exposure to the US market for the first time. The two companies are initially looking to set up three warehouses, and then expand it to 20 operations. Shares in Ocado have jumped to an all-time high today.
Burberry (LON:BRBY) shares are in demand today after a string of investment banks raised their respective price targets for the company. Yesterday Burberry revealed a strong set of full-year figures, and today a number of equity analysts have updated their outlook for the stock. The share price hit a six-month high today, and if the positive run continues it could target 2,000p.
Royal Mail (LON:RMG) shares have suffered as the letter delivery service continues to hold the company back. Full-year group revenue and adjusted pre-profit rose by 2% and 1.2% respectively. UKPIL, the British division, revealed no sales growth, and it predicts a decline in letter volume next year GLS, the European-focused parcel delivery service, delivered a 10% rise in revenue, and this division continues to be the dominant player in the group. Royal Mail foresees transition costs coming in at the top end of the forecast of £130-£150 million, and this is chipping away at investor sentiment too. Despite the move lower today, the share price has been in an upward trend for six months, and the pullback might see new buyers enter the fold.
The UK government has announced plans to slash the maximum stake on fixed-odds betting terminals from £100 to £2. Stocks like William Hill (LON:WMH) and Paddy Power Betfair (LON:PPB) sold off initially but have since bounced back. Investors were anticipating a sizeable reduction in the maximum stake, but the £2 mark caught the market by surprise.
US
US equity benchmarks haven’t moved much today, as traders are wondering which way to look, particularly with US bond yields relatively high.
The US economy remains in good health. The latest jobless claims report showed an increase from 211,000 to 222,000, while economists were expecting a reading of 215,000. The jobless rate may have ticked up, but it is still not too far away from multi-year lows. Meanwhile, the Philly Fed manufacturing index jumped to 34.4 – its highest level in a year.
The solid economic updates add to the speculation over how many more rates hikes will we see from the Federal Reserve this year. In 2016 and 2017, the US central bank hiked rates three times, and there is growing speculation there will be four hikes in 2018.
FX
The US dollar index has been creeping higher this afternoon, as US government bond yields remain firm. The rally in the greenback recently has been spurred by the change in sentiment regarding future monetary policy. More traders are coming around to the idea the Fed will do another three rate hikes this year, and the greenback and US government bond yields are moving higher in tandem.
GBP/USD and EUR/USD have been at the mercy of the US dollar today, with no major economic announcements from the UK or eurozone. Both currency pairs have been in a downtrend over the past month, and we have yet to see any sign of a turnaround.
Commodities
Gold is lower today on account of the firmer US dollar. The metal fell to yet another new five-month low. The chatter about the possibility of the Fed tightening monetary policy faster than initially thought is weighing on gold. While the metal remains below $1,306 – its 200-day moving average, the outlook is likely to be bearish.
WTI and Brent crude oil have reached new 42-month highs as concerns about supply levels persist. Brent crude topped the important psychological level of $80. Some commodity analysts are predicting $90 per barrel in the next couple of years, and this adds to the upward pressure. President Trump’s decision to withdraw from the Irian nuclear deal is the main driver of the rally.