Oil rally gives bulls extra Energy

Oil rally gives bulls extra Energy

Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:

FTSE 100 Index called to open +15pts at 7330 (ex-divs -9.8pts), holding yesterday’s break above Monday’s highs of 7317. Bulls need a break above overnight highs of 7335 to open the door for a run-up towards 7400. Bears require a break back below 7317 for a fall-back towards 2-day rising support at 7290. Watch levels: Bullish 7335, Bearish 7315

Calls for a positive open derive from gains in Asia overnight supported by further advances in commodity prices including metals and oil. This added to an already positive close on Wall St, extending this week’s rebound, boosted by macro data, a favorable economic outlook, a received earnings season and a calming of both recent trade war and geopolitical tensions.

FTSE further buoyed by GBP holding around yesterday’s lows versus USD, the former dented by a brace of House of Lords votes against the government on Brexit and the latter having strengthened on investors upping bets on three, possibly four, more US Fed rate rises this year, continuing to normalise policy and tame inflation.

In corporate news this morning, the FT reports that Melrose’s takeover of GKN set to avoid referral to UK competition agency. Weir Group Q1 orders +22%, Minerals +13%, reiterates FY guidance, announces $1bn acquisition of ESCO (surface mining tools) 59% cash, 41% equity (funded by 7.4% share placement and debt), intends to sell Flow Control.

Unilever underlying sales growth 3.4%, inline, ex-spreads 3.7%. Sky 9-month operating profit +22%, EBITDA +10% on revenues +5% like-for-like, added 38K customers in Q3, trading in-line, consumer environment to remain challenging. BHP cuts iron ore output guidance, but ups that for copper.

Debenhams full year pre-tax profits expected at the lower end of the consensus range, interim dividend to be rebased to 0.50p. Acacia Mining Q1 production tracked FY guidance, all three operations in-line with respective mine plans. Ashtead starts 2-day investor event in New York. UK Serious Fraud Office opens formal probe into Ultra Electronics’ business dealings in Algeria.

On healthcare, GlaxoSmithKline says landmark IMPACT study published in New England Journal of Medicine shows significant benefits of Trelegy Ellipta for patients with chronic obstructive pulmonary disease (COPD). AstraZeneca receives US FDA approval for Tagrisso for 1st-line use in non-small cell lung cancer.

Sustained oil price rally (Brent closed $73.81, +2.96% on Wednesday) lit a fire under resource stocks and commodity prices (Copper +0.31%, Platinum +0.61%), as EIA reported a 1.1M barrel oil inventories drawdown in yesterday’s report. Saudi Arabia added further kindling to demand for crude by indicating it would be happy for oil prices to reach as high as $80-100 a barrel, indicating that the voluntary OPEC+ supply cap is set to extend further. White House indecision over a new round of Russia sanctions and Venezuela’s ongoing economic woes added to the supply uncertainty. Oil prices hit 4-year highs and the rally is expected to continue.

Gold prices edged slightly higher to 1351 (+0.18%) to pull back some of the previous day losses, as the precious metal has been testing the 1358 ceiling that it has been bumping off of since the beginning of the year.

In focus today will be UK Retail Sales (9.30am) which, along with Tuesday’s better-than-expected wages growth and yesterday’s softer-than-expected inflation, may help us further decipher the strength of inflationary forces and consumer squeeze in play, and whether the Bank of England will feel inclined to follow through with a UK interest rate hike in May. Note that the Bloomberg market-implied probability sits at 88%, up from a week ago but down from >95% earlier in the month.

As we wrote yesterday, Retail Sales are already expected to post a bad March, with monthly growth -0.5% (from 0.8% in Feb) on account of extremely cold weather and snow (the BRC – Springboard Footfall and Vacancies Monitor suggested March footfall -6%, steepest year-on-year fall since end-2010) despite annual Retail Sales growth accelerating to 2.0% (from 1.5% in Feb) thanks to a favourable Easter timing (earlier this year).

Away from that UK data print, the main events will be an EU Finance Ministers participating in the Spring summit of the International Monetary Fund (IMF) and World Bank in Washington as well as speakers including Fed Governor Brainard (1pm; centrist, voter) at the 2018 Global Finance Forum in Washington, Fed vice-chair Quarles (2.30pm) providing semi-annual testimony before the Senate Banking Committee andBank of England’s Deputy Governor Cunliffe (5.30pm; voter, dovish).

In terms of Q1 earnings season, major US corporates reporting today include Bank of New York Mellon (the last of the Banks to report), Blackstone, E*Trade and Phillip Morris, the latter having potential read-across to FTSE-listed tobacco giants British American Tobacco and Imperial Brands.

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Categories: Analysis, News
Tags: finances, gold, oil, retail

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