Burberry in demand
Miners and retailers have dominated the action in London as economic figures from China and a reasonably strong performance from Tesco and Burberry lifted the market. Although the GDP figure was below the previous quarter’s, and industrial production was still weak, the raw materials sector was comforted by the thought that the downward momentum in Chinese figures has come to an end. Meanwhile, Tesco saw profits drop yet again but investors have opted to take the positive view for today at least, concentrating on the firm’s overarching predominance in size and reach versus its rivals; income hunters will be grateful the dividend was left untouched.
Burberry saw its shares rise 2.7% after demand in China and Korea revived, nudging second-half revenues in the direction of £1 billion. However, the firm warned that a stronger pound could take its toll in the future. A warning that may become more and more common among exporters if sterling continues to gain ground against the US dollar.
Tech sector sentiment to be tested
US markets have started the session in better form than they did yesterday, when gains rapidly evaporated after an initial bounce. Housing starts and building permits were both weaker in March, while Bank of America did its best to undo the positive feeling created by Intel and Yahoo last night; the bank reported a first-quarter loss of $276 million. Thus far in bank earnings we are 2-1 in favour of poor figures, so the onus will be on Morgan Stanley to liven up the situation.
After two days of gains we can expect to see some directionless trading, and it will be up to Google and IBM to keep up the positive earnings trend in non-financials. Sentiment in the tech sector will have a further test tomorrow when Weibo lists. While the 'Chinese Twitter' has opted for a more sober valuation than its US cousin, it still needs to post a profit at some point in the future.
Chinese data pushes copper higher
Copper’s battle for $3 per pound was renewed today as Chinese figures pushed the metal back above this key level. The better-than-expected figure has given us a relief rally here, but what is lacking at present is the momentum to break out of the current range. Weaker Chinese industrial production figures took the gloss off the GDP reading, indicating that demand may still remain weak even if Chinese growth does pick up. The $3 level remains the magnetic price for copper, but an absence of really positive news will see us retest the March lows around $2.90/pound if we cannot hold the current price.
UK unemployment boosts cable
The star performer of the day is GBP/USD, which was enlivened by UK jobless figures that saw the unemployment rate drop below 7%. Mark Carney will be relieved that he backpedalled on this element of forward guidance; had he not, the Bank of England would now be facing uncomfortable questions on the timing of the next rate rise.
However, we have now run straight into the $1.68 level where previous short-term rallies have stalled. The longer-term trend direction is certainly still up, and while the immediate price action may be on the downside as we drop back from $1.68, heightened expectations of a UK rate hike will most likely put further upward impetus into the GBP/USD rally.