It’s been another positive week for the FTSE100, as it looks to close higher for the fifth week in a row, however markets on the other side of the Channel have struggled, even as we look set to end the week on a positive note across the board.
Europe
Today’s positive session for European markets appears to have more to do with the fact that the strength of the US dollar has pushed both the pound and the euro lower, with the pound falling to its lowest levels since November 2020, below the 1.3000 level.
The CAC40 in France has come under pressure this week, ahead of the first round of the French elections this weekend, as Marine Le Pen has closed the poll gap with Emmanuel Macron, while the DAX has also fallen back on concerns that the German economy is slipping into recession.
It’s been a solid week for the more defensive areas of the UK market with health care performing very well, with AstraZeneca and GlaxoSmithKline the best performers over the past few days. AstraZeneca’s share price hit a new record high today, to become the UK’s most valuable company, moving past oil giant Shell.
Shell shares have rebounded today after sliding back yesterday on the back of the news that it was taking a $5bn write-down on its Russian assets.
Today’s gains on the FTSE100 have been broad-based with strong performances from energy, health care and financials.
US
US markets saw a somewhat mixed start to the last day of the trading week, and have continued to look weak, due to the continued rise in US yields. Last week we saw US markets hit a 3-month high, however this week’s hawkish Fed pivot on balance sheet reduction appears to have prompted some profit taking as we look ahead to the start of US earnings season next week.
US 10-year yields have continued to push higher, hitting fresh 3-year peaks above 2.7% as investors continue to look towards next week's CPI report and the prospect of a more aggressive Fed in May.
The Nasdaq 100 is leading today’s declines with tech stocks taking the brunt of today’s weakness.
Robinhood Markets has come under selling pressure after Goldman Sachs downgraded the company to “sell” with the bank saying that it was unlikely to reach profitability in 2023.
FX
The US dollar has swept all before it this week, with the US dollar index moving above the 100 level for the first time since May 2020, with the worst performers being the negative yielding currencies of the Japanese yen and the euro, as yield differentials between those currencies and the US dollar widen out even further.
The pound has also come under pressure, slipping below the 1.3000 level for the first time since November 2020, despite the fact that the Bank of England is in a hiking cycle of its own. This is likely to be a concern for the MPC as a weaker pound tends to negate the impact of tighter interest rate policy. Despite Bank of England concerns that raising interest rates too quickly could squeeze consumer incomes further, they may well have to if a stronger US dollar pushes the pound too much lower in the coming weeks.
Commodities
Crude oil prices saw a big drop last week, and this week looks set to see another negative week, after another emergency reserve release of reserves, and concerns about a slowdown in Chinese demand as the whole city of Shanghai is locked down due to Covid-19 outbreaks. This appears to be offsetting concerns about disruption to supplies from an embargo on Russian supplies as the events in Bucha, Ukraine prompt global outrage.
Despite the strength being seen in both US yields and the US dollar, gold prices appear to be edging higher, and could well be on course for a retest of the recent highs.
Volatility
NVIDIA remains in focus following that bout of activity seen across the wider semiconductor sector at the start of the week. Shares finished the day little changed but traded in a 5% range, driving daily vol higher to 151% against 110% on the month.
US Natural Gas is the latest commodity to find focus. The underlying price traded out to a 13 year high on Thursday with uncertainty in the global energy market seen as rattling sentiment. As a result, daily vol advanced to 74% against a monthly print of just 58%.
Fiat and cryptocurrencies alike are looking somewhat subdued although Dogecoin continues to find some action as it settles from the excitement earlier in the week. Daily vol set at 89%, although that’s barely up from the 84% one month reading.
Elsewhere, markets have appeared largely uneventful, although some of CMC’s proprietary share baskets continue to offer a degree of action. Two examples here are daily vol on the Gaming basket advanced to 68% from 53% on the month, whilst the Cyber Security equivalent printed 58% against 47%.
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