Travel stocks rally, China PPI shrugged off for now

Morning Note

European markets opened mixed but broadly remain calm as they have for the whole week. Everyone’s waiting for signals on inflation – investors seem to be largely shrugging one from China today. Having led the way higher yesterday, the FTSE 100 is weaker today, whilst European indices are just in the green as they chop sideways ahead of tomorrow’s ECB and US CPI double-header. The Tiggerish outgoing chief economist of the Bank of England, Andy Haldane, said this morning that the UK economy is going gang-busters and inflation pressures are strong.

 

It was a mixed bag over the US in yesterday’s session as the Dow slipped a modest 30pts, the S&P 500 stayed flat as it struggles to make a new all-time high, and the Nasdaq rose 0.3%. The S&P 500 rose by less than 1pt to 4,227.26, a whisker below the record 4,238.04 reached on May 7th. 10yr Treasury yields slipped to 1.513%, the lowest level in a month. Remember payrolls data last week showed strong but not too strong job creation – enough to keep tapering talk at bay, or at least so the market seems to think. Yesterday’s huge JOLTS jobs openings report highlighted that the US economy is booming but a shortage of the right labour in the right places could a) force up wages and b) restrain growth (stagflation?). But, in the words of Mario Draghi, this is a ‘high class’ problem to have.

 

China’s producer price index, a key leading indicator of global inflation, rose at its fastest pace in 13 years as base effects from last year’s pandemic and a boom in commodity prices fed into higher prices paid by businesses. PPI in China rose at 9% in May, the highest it’s been since 2008, and a signal that inflationary pressures are not going away soon. It’s not a major surprise – expectations were for 8.5%: we know inflation is here right now. The question remains about the degree to which this is a transitory force or a lasting shift. There is another question: can companies pass these on to the consumer? If so, it runs the risk of stagflation; if not it could means slowing earnings growth. Does this favour the value trade still? We’ve seen a big rotation already, but growth and inflation this year ought to continue to be supportive. Cathie Wood of Ark thinks otherwise. “The rotation back to growth is probably close at hand,” she said at an Ark Invest webinar on Tuesday.  

 

Travel stocks popped up a touch on news the EU parliament has approved vaccine passports to ease travel this summer. We saw the likes of TUI, IAG, EasyJet and Ryanair all jump as the news broke on the wires. WH Smith also ticked higher, dependent as it is now on travel sales. SSP, the operator of food and beverage outlets in travel locations worldwide, should also be pleased. It reported a £300m loss this morning as revenues declined by almost 80%. Management say they don’t think sales will return to pre-Covid levels until 2024. Shares dropped at the open on the big loss but turned higher as the EU travel news broke. Meanwhile, the US eased travel restrictions for 61 countries, but not the UK. Nevertheless, there is a real sense that vaccines are working to open up the US, EU and UK to travel this summer, albeit not quite how it once was.

Oil pushed to fresh highs ahead of the EIA inventory report later and tomorrow’s OPEC monthly report. WTI drove on beyond $70 to mark an almost-three-year high overnight amid encouraging signs of demand recovery. Meanwhile fears of Iranian supply hitting the market later this year subsided after the US secretary of state Anthony Blinken said hundreds of sanctions would remain on the regime in Tehran, even if the two countries reach a nuclear deal. Whilst vaccines and the reopening of economies have left the market in deficit, helping to drive prices up 35% this year, the persistence of cases in some parts of the world combined with ongoing travel restrictions in Europe/US means there are still doubts about how quickly demand will recover this year.  Nevertheless, prices hit their highest since Oct 2018 after the API reported a draw of 2.1m barrels last week. 

Thursday sees the release of the latest OPEC monthly oil market report.  Last month’s report saw the cartel reiterate its belief in a strong recovery in world oil demand in the second half of 2021. This month’s report is not expected to show much change from the previous version, which said demand will rise by 5.95m bpd this year, up 6.6% from 2020 levels. Ahead of this, traders will look to today’s inventory report from the Energy Information Administration (EIA). Last week’s EIA inventory report showed stockpiles declined by 5.1m barrels, a larger-than-expected draw that helped to support the bullish view on oil prices as demand in the US recovers. Analysts expect a draw of 3.3m barrels to be posted today.

Elsewhere, Bitcoin trades at $34k after touching $31k yesterday. A SEC official expressed concern about the US financial regulator’s push to enforce stricter rules around cryptos. GBPUSD continues to hold below 1.42, but a breakout of the triangle to the upside needs to be monitored with MACD (1hr) crossover still supportive of a nudge up to 1.42 – failure at 1.4180 could beget a drop to the 1.4120 area.

US EIA Oil Inventories Preview: Crude edges higher on surprise API draw

Commodities

Crude and Brent oil continue to trade sideways today, with crude adding $0.38 and Brent up $0.40 to reclaim around half of yesterday’s losses.

While crude oil has managed to rise above previous long-term resistance at $41, a new ceiling at $42 has quickly been established, and WTI continues to trade within a narrow range. It is the same story for Brent – a break above $44 early last week couldn’t be sustained.

API data surprises with large crude draw

Today’s gains have been prompted by the latest American Petroleum Institute’s crude oil inventories data, which has surprised with a sizeable 6.829 million barrel draw. Analysts had expected to see a mild increase of 357,000 barrels.

While this points to better-than-expected demand, it’s worth noting that last week’s figures revealed a shock build of 7.544 million barrels against expectations of a draw.

Stimulus talk, FOMC meeting limit upside for oil

Also capping gains are delays to the next US stimulus bill. Republicans and Democrats are still debating the measures – Democrats claim they don’t go far enough, but President Trump also has criticisms of the bill.

Oil gains could accelerate on this afternoon’s US crude oil inventories data from the Energy Information Administration. Analysts predict a build, but after the API’s figures we could see the data confirm a large, unexpected draw instead.

Market focus on tonight’s announcement from the Federal Open Market Committee could keep a lid on price action. Traders are expecting the FOMC to reaffirm its commitment to stimulus – the Federal Reserve has already announced that its lending programmes will continue until the end of the year, beyond the original September end date.

However, if policymakers don’t sound as dovish as markets expect this could fuel a rebound for the dollar, which this week hit two-year lows. Dollar strength would put downside pressure on crude and Brent even if the latest inventories data is positive.

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • 1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under licence no. 092/08 and FSCA under licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover** 

Products

  • CFD
  • Strategy Builder

Markets.com, operated by Finalto (BVI) Ltd by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • £1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by Finalto Trading Ltd. Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover**

Products

  • CFD

Markets.com, operated by Finalto (Australia) Pty Ltd Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

**Terms & conditions apply. Click here to read full policy.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir

Are you lost?

We’ve noticed you’re on the site. As you are connecting from a location in the you should therefore consider re-entering , which is subject to the product intervention measures. Whilst you’re free to browse here on your own exclusive initiative, viewing the site for your country will display the corresponding regulatory information and relevant protections of the company you choose. Would you like to be redirected to ?