Mining sector spares FTSE's blushes

Heading into the close the FTSE 100 is clinging on in positive territory, as eurozone markets move firmly lower thanks to Greek trauma. 

Mining truck
Source: Bloomberg

Vulnerable markets await Dragi's comments

Were it not for a sterling performance by the mining sector today, picking itself up off the floor following yesterday’s selloff, then the FTSE 100 would have joined its eurozone and US stablemates in negative territory.

Reports of a potential worsening of the Greek situation have not helped sentiment today, with bond markets taking fright at the prospect of the Greeks being thrown to the wolves. If Athens is aiming to shore up domestic opinion, then the threat of default might make some sense, but in a wider sense it is a classic example of ‘cutting off your nose to spite your face’.

Until Mario Draghi appears tomorrow with what is likely to be a calming balm of commentary about the pleasant effects of QE, markets look vulnerable. Speaking of balms, mining stocks were in demand thanks to expectations that Chinese GDP will allay growth concerns later in the week, while the ongoing rally in oil boosted Weir Group by over 4% and added 1% to the Shell share price.

Johnson & Johnson suffers first drop in 18 quarters

A bounce in US retail sales was not enough to lift Wall Street sentiment from the doldrums this afternoon, since expectations had been for a solid number that would reassure us that the US consumer was still going strong.

Wells Fargo and Johnson & Johnson reported falls in earnings, with the latter cutting its 2015 outlook and the former enduring its first drop in 18 quarters in income.

A reasonable performance from JPMorgan boosted that bank’s shares but was insufficient to spark a sustained rally. If US economic data continues to disappoint then markets may be able to shrug off these weak earnings as Federal Reserve rate expectations are pushed back, but for now the combination of poor macro and earnings data is conspiring to keep markets on the back foot. 

Oil bulls eye situation in OPEC

It had looked like another tough day for gold and silver but both these commodities have been given a lift thanks to that US retail sales report. The lack of a sufficiently large bounceback in the shopping habits of Americans meant that the report was filed in the ‘bearish economic data’ pile, and prompting a drop back in the dollar as over-eager rate expectations were pared back once again.

Meanwhile oil prices continued their Spring bounce, as another OPEC member, Iran, broke cover to demand a cut in output. Two is not quite enough yet to shift opinion within the body, but oil bulls will be watching this situation very carefully.

GBP/USD could move to $1.50

The retail sales report provided the catalyst cable and euro bulls had been waiting for to get their revenge on the dollar. The greenback’s retreat gave these currencies a chance to shine, with the pound’s performance particularly noticeable given the back-to-back months of ‘no-flation’ that the UK has now endured.

Sentiment is now turning once more against a US rate hike in June, which might set GBP/USD up nicely for a move back in the direction of $1.50.  

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.