Equity market movers 5th June 2017

It was a fairly lacklustre day for global markets with European and US indices edging lower over the day. The key themes were the rise and then fall in the oil price on the back of a deterioration in Saudi Arabian and Qatari relations, the technology sector was also in focus.

The Brent crude oil price fell more than $1.50 over the course of the day as the market tried to settle on what deteriorating relations between Saudi and Qatar meant for the price of oil. Interestingly, the energy sector in the FTSE 100 ended the day slightly higher, although BP and Shell have fallen 3% and 2% in the past week, highlighting the struggles for the oil sector as the oil price remains stubbornly weak. We continue to think that the energy sector remains a weak link for the FTSE 100, and we may continue to see weakness, as both Shell and BP look expensive relative to the overall market.

UK utilities and the political backdrop

We continue to see weakness in UK utility companies, including Centrica and the National Grid, and both stocks ended lower on Monday. We believe that downward pressure on the FTSE 100’s utilities sector will continue to underperform, as they remain sensitive to the outcome of the UK election on Thursday. Read more on our view of this here: https://goo.gl/gwMuBd

The ECB could boost European banks

We also mentioned that the European banking sector could be in focus on Thursday, especially if the ECB adjusts its forward guidance and drops reference to the prospect of a future cut to the deposit rate. If the German yield curve continues to steepen then we think that we could see further upside for Deutsche Bank, among other European banks.

Apple fails to impress

US indices backed away from Friday’s highs, and the biggest underperformer in the Dow at the start of this week surprisingly is Apple. The announcement of two new products including the Homepod speaker, which is significantly more expensive than its rivals, weighed on Apple’s share price. Although this has not gone down well with investors, the decline was less than 1%, suggesting a limited amount of enthusiasm for an Apple sell off. In fact, Apple remains close to last month’s record high.

As Apple struggled, Google (Alphabet), rose to its highest ever level and jumped above $1000 per share. This suggests that demand for the FANGS hasn’t been dented, even if Apple’s latest product has failed to grip investors’ imaginations.

Overall, we continue to think that we are not near a sell off in risky assets right now. A sign that risk appetite is still alive and well in the markets is the continued strength in Bitcoin, which remains close to the record high recorded last month. Other lead indicators, including the Dow Jones Transport Index and the Russell 2000, are also looking strong, thus, in the short term, we may continue to see gains for global stock markets even in the face of UK election uncertainty, central bank policy uncertainty and a spate of terror attacks in London.