The tension between hopes of a return to normalcy and fears of bad data and a second wave of contagion continue to dominate sentiment.
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Contents Click on the links below to get to the stuff you really really want. USA – Stocks clawed back some of Tuesday’s losses; Mnuchin and Powell provide reassuring comments; Retail stocks benefit from higher sales in some sectors (#USA) UK – Easing of restrictions lifted sentiment; Inflation has slumped; FTSE 100 up; BA hit by downgrade; House builders struggling (#UK) Continental Europe – US tech rises pull European peers up; Lufthansa downgraded; Bund demand steadies (#Europe) Elsewhere – Negative mood this morning; Taiwan benefiting from US tech stock rise (#Elsewhere) WTF – Naff or amusing? (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
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USA
Stocks were generally clawing back some of Tuesday’s losses yesterday as the tension between a potential vaccine and concerns over another wave of contagion as well as more dire economic data. Tech stocks posted the biggest gains.
At the same time, market participants appear to be rolling their eyes now at more anti-Chinese rhetoric from the US administration. If you want to torture yourself, look up “wacko in China” and you’ll be able to read the latest Tweet from Trump.
Some rather more helpful and measured comments are being issued by Treasury Secretary Steven Mnuchin and governor of the Federal Reserve, Jerome Powell. On top of that, there was a 6% increase in mortgage applications compared to a week earlier. This is a 6% increase from a low number though, but at least it wasn’t another fall. Even more reassuring was the purchase volume (i.e. number of properties being bought). That has recovered from the 35% drop compared to one year earlier that was registered in early April, to a much more palatable 1.5% drop this week compared to one year earlier.
That lot left the S&P 500 1.7% higher on the day led by some solid increases in sales in sections of the retail sector. Target (department store) and Lowe’s (home improvement) both registered sales rises of more than 10% compared to a year earlier.
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UK
In the UK, the lifting of lockdown measures just about held sway, enabling stocks to close higher on the day. The inflation numbers appeared to provide the most influence though.
UK inflation has fallen from 1.5% in March to 0.8% in April. That’s its lowest level since August 2016 and makes the already negligible prospects of interest rate increases even less likely any time soon. Interest rates influence the demand for different currencies. If you want a higher return on your cash you’re likely to put it into the stable currency that offers the highest interest rate. That pushes the value of that currency up: the more people who sell the dollar and buy pounds sterling, the lower the value of the dollar and the higher the value of the pound (though that situation would have more effect on the pound because it’s a much less important currency).
The point being that lower inflation leads to lower interest rates leads to lower value to the pound. And that’s what appeared to be happening yesterday, hence the export-focused FTSE 100 companies rose in value to leave the blue-chip index 1.1% higher. Meanwhile, the more domestically focused FTSE 250 only managed a 0.3% rise on the day’s trading yesterday.
The notable movers included British Airways owner, IAG, which sank by 2.3% after a downgrade from rating agency Standard & Poor’s. House builders were battered with Taylor Wimpey, Berkeley, Barratt and Persimmon all losing between 3.5% and 4.8% on the day. They are suffering hugely as folk have withdrawn properties from a frozen market.
Over in the lip-smacking world of bonds, the demand for the lower-risk rated stuff nudged up a little yesterday, but it has been relatively steady during May. We had the massive jump into benchmark 10-year Gilts (UK government bonds) in March following by a similarly sharp jump out of them. Since then and the ripples of nervousness in April, things have calmed down. So we need to avoid another bout of contagion to keep things on the straight and narrow.
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Continental Europe
Stocks on the continent were less affected by currency movements and more by the general mood of relative enthusiasm following a choppy start to the week.
The Euro Stoxx 50 and German DAX both closed around 1.3% higher on the day. A rise in US tech stocks had a knock-on effect in Europe, while the general hopes of a stable recovery provided a positive foundation for investor sentiment.
The fly in the cliche was Lufthansa which also got the downgrade that S&P had foisted upon British Airways. So Lufthansa closed the day 1.3% down, dragging the consumer services sector with it – the only industrial sector that posted a loss yesterday.
As for bonds, yields on benchmark 10-year Bund (German government bonds) have recovered from the drop through April, but remain very low at -0.488%. This reflects very high demand for them while folk look for somewhere in which to put money where they have a reasonable chance of predicting the potential losses.
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Elsewhere
The general mood across the Asia Pacific region this morning is moderately negative. Benchmark national stock indices are down from Australia to Japan. The outlier is Taiwan which is tech-heavy and tends to reflect the prospects of huge US tech companies to which Taiwan sells so many components. After a positive day’s trading in US tech stocks yesterday, the Taiwan 50 is trading a full 1.0% higher this morning.
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WTF (What’s The Fact?)
Naff or amusing?
You decide:
Times New Roman and Helvetic walk into a bar. The barman shouts, “Get out of here you two. We don’t serve your type.”
Did you hear about the mathematician who is terrified of negative numbers? He’ll stop at nothing to avoid them.
I just invented a new word: “Plagiarism”.
How did Moses make tea? He brews.
What type of exercise do lazy people do? Diddly-squats.
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Links
Investopedia (www.investopedia.com/dictionary/) – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point Guffipedia (ig.ft.com/sites/guffipedia/) – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies Guardian (www.theguardian.com) – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott) Times of India (timesofindia.indiatimes.com) – Why use five words when 37 will do? Daily Mail (www.theatlantic.com/magazine/archive/2016/07/the-war-on-stupid-people/485618) – Click it. I dare you.
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———————————————————— IMPORTANT This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you are too stupid to recognise the devil’s ear wax when you see it, then you’re on your own.
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