This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
M&A activity lifts FTSE
Upward momentum has returned to the FTSE 100 again today, although the picture for the index is not as obviously bullish as it is for the Duitsland 30 and US 500. M&A activity is both adding to the market today and detracting from it, as InterContinental Hotels becomes the latest firm to be targeted by US companies looking to find a more congenial home from a tax point of view, while AstraZeneca drops yet again as Pfizer's current takeover bid comes to naught.
For the FTSE, it is becoming vitally important to see the market reach 6900, as only then could we say for certain that the rally is definitely back on. Given past performance, it still seems like there is a lot of reluctance to carry the market all the way to the next round number, and the oft-touted figure of 7000 certainly seems like a long way off for the moment.
S&P 500 continues march higher
The march higher in the S&P 500 continues today, as traders look to take it firmly out of the rangebound trading that has prevailed for so many weeks. The bullish mood was given a lift by durable goods that registered continued growth for the month of April, while the March figure was shoved higher to 3.6% from 2.6%. All things considered the market seems far more in a mood to receive good news enthusiastically than it was a few weeks ago, even if the general participation rate of individual stocks in the equity rally leaves a lot to be desired.
Trade data points to a wealth of positions in the Vix expecting increased volatility, but the doom-laden crowd have been consistently wrong so far this year, with the equity rally’s resilience clearly demonstrated in the US Tech 100, which has quietly clawed back the vast majority of its losses from March and April and now wants to retest the waters around 3740.
Gold falls through $1268
The consolidation mode for gold in place since mid-April looks to have given up the ghost today, as the dollar strength and the brand new highs on equity indices have pushed investors into the riskier assets and saw the metal finally make a break to the downside. Now that it has fallen through $1268/oz, we will likely see negative sentiment towards the metal increase and ultimately put the price on a course back towards $1250/oz – a level not seen since early February. Supply concerns are still very much the driver and the conflicts in both Ukraine and indeed Libya are likely to support oil prices for now.
UK Brent crude oil has settled above the $110/bbl, while the US contract remains above the $104 marker. Oil prices have seen a gain of over 6% since early April and the resurgence in eastern Ukraine along with the much depleted Libyan production would indicate that there is an acute risk is that prices will continue to climb.
Euro still under pressure
It’s no secret that the euro has come under some pressure over the last few weeks, shedding some 2.6% against the dollar alone since 8 May as markets prepare themselves for some European Central Bank action. Negative interest rates may even form a part of the new policy with the objective to both weaken the euro and encourage banks to lend more to credit-starved companies. One could question whether or not such a move is already priced in to the FX rate, particularly since every banker and his/her dog is predicting some form of loosening.
Helping the story is that over the past two weeks the dollar trade weighted index has made something of a comeback. The better-than-expected durable goods orders and purchasing managers index services for May released today, have also helped to underpin this dollar strength and led to suggestions that we may now see a Q2 gross domestic product reading of 3% for the US. Those expecting a fully-fledged quantitative easing programme next month from a deflation denying ECB may end up with their wings clipped.