Markets post strong gains

Chinese and US manufacturing reports struck an appropriately positive tone.

Ocado logo
Source: Bloomberg

UK markets

A strong start in the US has given the FTSE the momentum to add to its morning gains, as traders bask in the July sunshine. Investors have had to be very patient with the FTSE 100 in the first half, with much activity but little real progress. Hope springs eternal however, and their patience may be rewarded if the mining sector can continue to prop up the broader index. A shift back towards risky assets has begun to take shape, which would put the FTSE 100 on course for 6880.

The Ocado results have left shares 4% lower, but Morrisons is struggling too. The disposal of the Kiddicare arm would be yet another tombstone in the graveyard of unwise supermarket ventures, following on from the example set by Tesco. With all eyes on its sales performance, Morrisons needs to keep its focus on the core divisions, and not worry about peripheral divisions.

US markets 

The first day of the new quarter has seen US markets surge out of the starting blocks, with a new all-time high for the S&P 500 and more gains for the NASDAQ. The rebound in the Russell 2000 is a sign that the limited risk appetite of the first quarter has given way to a keen desire to buy up small caps, a particularly encouraging sign. Manufacturing readings remained relatively buoyant, as the dismal performance of the first quarter was banished from memory. But to keep going, a strong non-farms number is needed, and some pleasingly dovish commentary from the European Central Bank wouldn’t go amiss either. Such events would create ideal conditions for a mid-summer melt-up in stocks. 

Commodities

The impressive comeback in gold and silver has continued today, as the resumption of hostilities in Ukraine provided yet another lift. So long as Ukraine and Iraq remain on the headlines, there will be no shortage of worried investors. With institutional investors having deserted commodities in recent months, the relatively good first half for commodity prices will act as a compelling reason to return to the sphere, with oil prices likely to remain supported in the months to come by the continuing conflict in Iraq. For gold, a firm break above $1328, the April high, might lead to another rally in the direction of $1380.

FX

Sterling's 100+ point move versus the dollar has shown little sign of stopping, after a buoyant reading on UK manufacturing. All this good data does little to dispel a growing sensation that the Bank of England might opt for a tentative dip into the waters of higher rates some time towards the end of this year. A single rate rise of small scope would send the right signal – it would fulfil the ‘limited and gradual’ aim very nicely. With $1.71 now acting as support, GBP/USD seems content to rise from here. 

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