European markets end higher
The belated relief over Emmanuel Macron’s victory in the weekend’s French presidential election, along with strong German trade figures and a recovery in resource stocks all helped to give European stock markets a boost. Germany’s Dax reached a new closing high, while the FTSE 100 ended at its best level since the middle of April. In the US, both the Nasdaq Composite and S&P 500 hit new intra-day highs. The final scores showed:
- The FTSE 100 finished up 41.35 points or 0.57% at 7342.21
- Germany’s Dax rose 0.43% at 12,749.12
- France’s Cac closed 0.28% higher at 5398.01
- Italy’s FTSE MIB ended 0.27% better at 21,486.95
- But Spain’s Ibex slipped 0.42% to 11,049.2
- In Greece, the Athens market added 1.96% to 778.37
On Wall Street, the Dow Jones Industrial Average has reversed its early gain and is currently down around 9 points or 0.05%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we\ll be back tomorrow.
Many analysts believe another US interest rate rise is on the cards when the Federal Reserve gets together for its regular meeting in June.
And in a speech in California, Kansas City Fed president Esther George has added to that impression. Indicating she believed the US economy was strong enough for further hikes, she said:
The economy continues to expand as sustained job growth and solid gains in household spending – the weak first quarter notwithstanding – are mutually reinforcing. The international backdrop poses less downside risks today, further supporting growth at home. In this environment, the role for monetary policy is to support the sustainability of the expansion. Therefore, as labor markets continue to tighten, continuing the gradual removal of monetary accommodation is the appropriate course for the FOMC.
And that does not just mean rate rises:
Removing policy accommodation goes beyond increasing the level of the federal funds rate. The Federal Open Markets Committee also must begin to adjust the size and composition of its securities holdings. The Federal Reserve’s balance sheet is currently about $4.5 trillion, or almost 25 percent of GDP compared to 6 percent of GDP 10 years ago. ...My own view is that the process should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities.
Once it begins, however, the runoff in the portfolio should be on autopilot and not reconsidered at each subsequent FOMC meeting.
Those expecting a market sell-off from the current highs could be disappointed, says Chris Beauchamp, chief market analyst at IG:
Despite a lacklustre open, the S&P 500 and the Nasdaq 100 have already notched up record highs, while European markets have put in healthy gains.
We have a market with no news, and no volatility, and this leaves us wondering what the next move will be. Everyone is looking for the next selloff, or at least the reason for the next selloff, so we will probably go without one throughout the summer.
This market has the look of an express train, refusing to stop to let anyone on board. At least in London the rally has a broad-based look about it – we are seeing bargain hunters lifting the mining sector, but banks, retailers and housebuilders are also on the up. This is not a buying frenzy, but more a case of a careful pick-and-choose market. The tone is cautiously bullish, but with one eye on potential bumps in the road.
And on the falling gold price, he says:
It is possible to imagine a world where gold prices keep falling right to June and the next Fed rate hike. Dollar strength continues to wreak havoc in commodity prices, but for gold all hope of a bounce appears to have gone. Instead of slowing down, the slump seems to be picking up speed once again.
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Gold slips to eight week low
With stock markets moving higher after the French election and the volatility index on the slide, investors are shunning assets traditionally seen as havens in difficult times.
In particular, gold has fallen to an eight week low, down around $8 an ounce to $1217. UBS analyst Joni Teves said:
Gold is currently facing pressure amid diminished political risks out of Europe and market participants anticipating the Fed to hike rates in June...
With one of the largest political risk events [the French election] now cleared, some consolidation is warranted, albeit political uncertainty lingers in Italy and is likely to remain for some time. For now, the focus is likely to shift to monetary policy at the Fed and the ECB, which implies economic data will need to be closely watched.
Further pressure cannot be ruled out for now, but we expect bargain hunting to emerge and physical buying to strengthen should the market test $1200, paving the way for a recovery.
More signs of confidence in the US jobs market.
Job openings were steady at 3.8% in March compared to February, according to the Labor Department, as was the quits rate at 2.1%. The latter is a key measure for Federal Reserve chair Janet Yellen, since it indicates workers are confident enough about the jobs market to move on. The actual numbers showed an increase from 3.03m to 3.1m.
Voluntary quits, a sign of confidence in the job market, rose slightly in March. #JOLTS pic.twitter.com/muP8Dl4bfs
— 538EconBot (@538EconBot) May 9, 2017
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And Apple is not the only one:
Sorry for broken record.
— Carl Quintanilla (@carlquintanilla) May 9, 2017
All-time hi's:
Amazon
McDonalds
Lowe's
UAL
Marriott
Ulta
Aetna
Humana
ThermoFisher
Boeing
Raytheon
Apple
Alphabet
Apple shares hit new record
With US markets moving higher, Apple has hit another peak, adding 1% to more than $154 a share and valuing the iPhone company at more than $800bn.
The company has crossed that barrier despite falling iPhone sales, which has been put down to consumers waiting for the next model to be launched later this year. And analysts at US broker Drexel Hamilton believe the company’s shares could climb even further, putting a target value on the business of $1trn.
Wall Street opens higher with S&P and Nasdaq at new records
A strong US company results season and the outcome of the French election have pushed American markets higher again.
The S&P 500 and the Nasdaq Composite have both edged higher at the open to touch yet new highs, while the Dow Jones Industrial Average is currently up 8 points or 0.04%.
And here’s the Dax hitting new peaks:
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After Monday’s muted response to Emmanuel Macron’s weekend victory in the French elections, European markets have belatedly picked up the pace.
In Germany, the strong trade data and a weaker euro have helped the country’s stock market to a fresh intra-day high. The Dax is currently up 0.65% or 82 points at 12,776 having earlier hit a record of 12,783.
France’s Cac has climbed 0.34% and the FTSE 100 is ahead 0.75%, with the UK index helped by a recovery in mining stocks and shrugging off the falls in energy company shares after the Conservative price cap proposals.
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Here’s another chart showing how market volatility has fallen sharply in recent weeks to the lowest level since 1993, and MUCH lower than in the financial crisis.
$VIX lowest close since 1993. The options @market doesn't expect much movement in the weeks ahead. But, what if they're wrong? pic.twitter.com/7KJBaz7u5b
— Mike Shell (@ShellCapital) May 9, 2017
As explained earlier, the fall in the VIX means people aren’t buying as many S&P 500 options as usual (to hedge themselves against hefty swings in the markets).
That suggests investors are more confident about market conditions. That could be justified, as economic conditions may be picking up as European political risk fade. Or it could be dangerous complacency.
We’ll know, either way, in a few month time....
Over in Australia, the major banks are reeling after being hit with a new tax.
The Australian government announced the levy in its 2017 budget today. It will raise over six billion Australian dollars from the country’s big five banks over the next few years. Each will pay upwards of A$300m per year based on their liabilities.
Treasurer Scott Morrison claimed that it was a “fair contribution from our major banks, similar to measures imposed in other advanced countries”.
More pertinently, it allows the Australian government to target a small surplus by 2021.
But the banking industry is predictably irate.
Australian Bankers’ Association chief executive Anna Bligh claimed it was a “political tax grab to cover a budget black hole,” and hinting that the public would pay the price.
The banks don’t have a secret stash of money ... there’s only three places they can get this from – borrowings, deposits or shareholders or a combination of all three and every Australian has an interest in one of more of those parts of a bank’s operations.
Curiously, Australian bank shares slid before the policy was even announced, as rumours of a new tax swirled. Perhaps someone should impose a tax on leaks....
And here’s our liveblog on the Australian budget:
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The job vacancies total in Germany has hit a record high, in (yet) another sign that its economy is robust.
The number of unfilled positions jumped by 9,000 in the first quarter of 2017, according to new research from the IAB institute. That means there were 75,000 more vacancies than a year earlier.
Rising vacancies often suggests that an economy is growing faster than its labour force, which ought to give workers leverage for higher pay.
Global stock markets have “found their mojo” today, says Mike van Dulken, head of research at Accendo Markets.
He cites five reasons:
Optimistic is derived from hopes that OPEC will extend [oil] production cuts at month end; Macron can form a working parliamentary majority; the Fed will hike because the US economy warrants it; the ECB will keep the QE taps open a little longer, and base metals prices have found a bottom after their recent sell-off.
FTSE hits one-month high
Britain’s blue-chip stock index has risen to its highest level since Theresa May triggered next month’s general election.
The FTSE 100 has now gained 42 points today, or 0.6%, to 7343. That’s only 100 points away from its all-time high set in March.
This morning’s solid German trade data is helping to support shares across Europe, as it suggests global economic demand is holding up. That’s good for mining companies, who continue to dominate the risers.
Energy firms, though, are falling after the May’s Conservative Party outlined plans to cap standard variable bills. Centrica, the parent company of British Gas, are down 1.6% while rival SSE has lost 1%.
Chris Beauchamp of financial trading site IG says a “bullish sentiment” has returned to the City, although the energy cap plan is causing some angst.
In London the embattled mining sector is finally seeing some support, despite little sign of a real turnaround in the ongoing fall in commodity prices.
At the other end of the spectrum, Centrica leads the utility sector lower as the Conservatives bang on about their energy capping policies. Such a move is emblematic of the Conservative party’s more interventionist stance. It will start with energy companies, but some will be wondering whether other sectors will come under pressure as well.
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Euro falls back through $1.09
So much for the Macron bounce!
The euro has just dropped below $1.09 against the US dollar for the first time since last Thursday, having hit a six-month high on Sunday night.
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Investec: Italian politics will bring fresh volatility
John Wyn-Evans, Head of Investment Strategy at Investec Wealth & Investment, has issued a research note on European politics following the French election.
He flags up that the next potential pitfall comes next month:
There are France’s legislative elections to the National Assembly on June 11th, when we will see whether or not M.Macron can consolidate his position with a parliamentary majority. In truth, this looks like a tall order for his En Marche! Party which now has to find 577 candidates to field. Even so, there is a fighting chance that a working coalition can be formed with other parties to push through a reformist agenda.
Matters can hardly be much worse than under Francois Hollande’s lame duck regime.
The next crisis could come from Italy, Wyn-Evans continues, where the Five Star movement is challenging mainstream pro-EU parties:
Looming larger is Italy’s forthcoming general election, which has to take place by May 2018. For Marine Le Pen, read Beppe Grillo; for the National Front, read the Five Star Party (5*). Although 5* is not, perhaps, as ideologically extreme as the National Front, it is definitely anti-establishment and not a fan of a more integrated Europe. But the threat is tempered by the fact that it is only polling around 30% of the vote (neck and neck with the Democrats) so would need to form a coalition to pursue its aims. Furthermore, a referendum on membership of the euro would require constitutional change, and former Prime Minister Renzi’s attempts to do just that failed last year, suggesting an underlying resistance to big changes within the country.
In any event, you can expect a sharp increase in the volume of commentary on Italian politics once a firm date is set, and markets to enter another period of uncertainty.
One of France’s most senior left-leaning politicians has thrown his support behind Emmanuel Macron.
Manuel Valls told French radio that he wants to run for Macron’s En Marche! campaign in June’s parliamentary elections. This may fuel speculation that Valls could potentially serve as PM under Macron - a position he has held before.
Reuters has the details:
“I will be a candidate for the presidential majority and I wish to join his (Macron’s) movement,” Valls, who was prime minister in Francois Hollande’s administration between 2014 and 2016, told RTL radio.
“This Socialist party is dead. It is behind us,” he said.
“The essential thing today is to give a broad and coherent majority ... to Emmanuel Macron to allow him to govern.”
Back in January, Valls failed to win the nomination for the Socialist party to succeed Hollande. Instead, the party chose Benoît Hamon, who trailed in 5th in the first round of voting as voters deserted France’s traditional parties.
Why tumbling volatility may be a problem
At first glance, the news that Wall Street’s fear gauge had hit its lowest level since 1993 sounds reassuring.
The VIX index (officially the “CBOE Volatility Index”) measures market volatility by tracking a number of ‘option calls’ -- contracts to buy or sell securities at a certain price in the future. It goes up when investors are scrambling for protection, and goes down when they’re not.
So recent moves show that the markets are calmer. But, this situation rarely lasts long - as volatility has a nasty habit of rearing up again.
One problem with low VIX is that investors can be tempted to add too much risk to their portfolios in a mad dash for a higher return on their investment.
Anothe danger is that investors might lack protection for a stormy day, if they haven’t taken up options contracts to hedge their exposure to the markets.
Johan Javeus, chief strategist at SEB Group, has tweeted a graph showing how the VIX fell to a 24-year low last night:
US VIX index closes at lowest level since 1993. Smooth sailing ahead or is it the calm before the storm...? pic.twitter.com/BAzw9i29Xo
— Johan Javeus (@JohanJaveus) May 9, 2017
FXTM chief market strategist Hussein Sayed fears that the low VIX could lure some investors could be tempted into risky trading:
While this could be interpreted to mean that good times lie ahead, it also indicates that the party may be over soon. Volatility does not stay at low levels for prolonged periods of time, and we’re likely to see the index reverting to its 200-days moving average around 15.
Just don’t let the extremely quiet market conditions trap you into taking huge risks.
Kit Juckes, currency expert at Societe Generale, says the fundamental problem is that central banks have distorted the markets by through their stimulus programme:
Super-easy monetary policy is creating artificially low volatility and driving money into trades and investments that are mispriced as a result.
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After dropping yesterday, European stock markets are all rising this morning.
Mining companies are leading the FTSE 100, with Glencore up 3% and Antofagasta gaining 2.5%.
Today’s trade figures show that Europe’s largest economy continues to power ahead, says the FT’s Mehreen Khan:
Year on year exports were up an impressive 10.8 per cent in March while imports climbed 14.7 per cent – a sign of healthy foreign demand for German wares and buoyant consumer appetite within the country which boasted its best level of growth in six years last year.
Germany’s overall trade surplus – which hit a record in 2016 – is now at €25.8bn.
Germany powers ahead with best ever trade figures in March https://t.co/01bCBsa3KI
— Financial Times (@FinancialTimes) May 9, 2017
German imports and exports hits record high
Germany’s dominant trade position is under the microscope again today, with new figures showing that it is importing and exporting more than ever before.
German exports jumped by 0.4% in March, to a record-breaking €118.2bn. The rest of the world mopped up goods from major German companies, and the smaller firms that make up the Mittelstadt.
But it wasn’t a one-way trip; German imports jumped by 2.4% in March to €92.9bn.
So the overall surplus actually dipped during the month, to €25.4bn, down from €25.8bn a year earlier. That probably won’t assuage critics who claim Germany’s trade surplus is destabilising the world economy.
Destatis, the statistics body, says:
These are the highest monthly figures ever reported for both exports and imports.....
In March 2017, Germany exported goods to the value of €68bn to the Member States of the European Union (EU), while it imported goods to the value of €61.1bn from those countries. Compared with March 2016, exports to the EU countries increased by 8.7%, and imports from those countries by 13.5%.
Germany’s trade surplus has been
The German trade surplus reached an all-time-high in March. pic.twitter.com/c5ZHfXT09x
— Teis Knuthsen (@TeisKnuthsen) May 9, 2017
As Associated Press put it:
Germany’s export imbalance is widely criticized by other countries, which accuse Europe’s biggest economy of not doing enough to spur domestic demand for foreign goods. Berlin counters that products made in Germany are simply better than the competition.
Separately, German industrial output in March was better than expected. Output fell by 0.4% during the month, compared to forecasts of a 0.7% decline.
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Introduction: Volatility tumbles as investors look beyond Macron victory
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Following the excitement of the French presidential election, the markets are rather subdued this morning.
After being relieved that Emmanuel Macron beat Marine Le Pen on Sunday, the City is are now pondering whether the En Marche! founder can actually deliver on his pledges.
Some investors are now looking ahead to this autumn’s German elections, and also to Italy, where the anti-EU Five Star Movement are topping the polls.
As London Capital Markets’ Jasper Lawler puts it:
There are more political risks on Europe’s horizon. Legislative elections in France in two months, German elections and perhaps a snap Italian election could yet see the European project derailed.
Italians have already demonstrated a willingness to ‘vote with their feet’ when they blocked a government referendum late last year.
But there’s no drama yet. Shares are creeping higher in early trading, after volatility in the markets hit its lowest since 1993. That shows that investors are pretty confident right now.
Too confident? Maybe, given the looming Brexit battle and the fact the world economy isn’t in top gear.
Naeem Aslam of Think Markets says:
The reason is that the Macron victory does not mean that we are out of the woods, there are still massive challenges ahead of him and the issue of soft and hard Brexit is still very much in play.
US Earnings for the Q1 were a little soft and the US GDP growth is nowhere close enough to its previous level- let alone what Trump wants.
There’s not much in the economic or corporate diary to spook investors today, apart from new German trade and industrial output figures. We’ll be tracking all the main events through the day....
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