Easter is over one of the sunniest on record, at least for those in the south of England. The march higher for equities with the odd pause appears to continue. One possible word of caution, despite Monday’s modest rise in US equities, more companies in the S&P 500 finished the day down than up. Earnings season will be in full swing this week as blue-chip companies in both the UK and Europe report earnings. Companies reporting include Coca Cola, Microsoft, Amazon, Tesla, many European banks report this week as well as several global pharmaceutical companies. We also get the initial reading on Friday for the first quarter GDP of the US economy.
The price of oil was the major talking point this morning as the price continues to rise on the back of robust demand and supply uncertainties from the Middle East. The US announced it was not planning to extend waivers on Iranian sanctions; this news sent the oil price 3% higher. Higher oil prices are often meant to be a reflection on a stronger global economy. They can also be the catalyst for inflationary pressures and slower growth. A central bankers nightmare.
We reported last week that the short position that traders had been holding on sterling as a result of Brexit was being unwound. According to a new report, traders are now net long sterling for the first time in almost a year. Sterling has, however, despite this newfound optimistic sentiment, drifted once again below 1.3 to the US Dollar. Possibly as Brexit once again makes headlines and in reaction to the resurgence of Nigel Farage and his newly formed Brexit Party, which appears to be gaining traction.
The rally in US equities has taken the S&P 500 within touching distance once again of the record highs it made last year. This is despite continued deterioration in the economic data pointing to lower GDP growth in the coming year. The Citi economic surprise index continues to fall as economic data fails to meet expectations. The better news is that, despite this weakness, it currently points to more than a slowdown in growth rather than a recession.
The release of the Mueller report could have impacted sentiment as the report did not exonerate the President from obstruction and Congress can pursue the investigation of Trump. This and the rising oil price could have given equity investors an excellent excuse to take some risk from the table; however, on Tuesday at least this did not appear the case, in any meaningful way