The reopening in the US and UK continues apace. More states are opening up bars, restaurants and other hospitality venues at full capacity, whilst Britons are set to resume international travel this month and get back in the pub too. Europe is catching up fast on vaccinating its population and will be at a similar level by the summer. The vaccines are working. Stimulus is also supporting spending as US personal incomes soared by 21 per cent last month. Dare we consider a return to genuine normality soon? Perhaps, but the picture is very uneven across the globe, as India shows all too clearly.
European stocks opened broadly higher on Tuesday before easing back to the flatline, with the UK market leading the way in a holiday-shortened trading week. The FTSE 100 rose 0.7 per cent in early trade, testing the 7040 high from last month again before paring gains. Infineon scrubbed 20pts off the DAX as the German index dropped by around 0.4 per cent. US markets were higher on Monday, with the S&P 500 up 0.3 per cent to 4,192 and the Dow Jones rising 0.7 per cent to 34,113. The Nasdaq lagged, falling 0.5 per cent as big tech names declined a touch following a period of strong gains running into earnings season. Tesla fell 3.5 per cent and Amazon dropped over 2 per cent.
Profits at Saudi Aramco soared 30 per cent versus last year as higher oil prices lifted earnings. Net income rose to $21.7bn. Crude prices have rebounded strongly in the last 12 months –it's just over a year since WTI futures dropped into negative territory ahead of expiration. Crude prices have a bullish bias at the start of May with WTI futures (Jun) hovering around the $643.50 area and Brent just a little under $68. Whilst there concerns about the situation in India and implications for demand growth, this is being outweighed by hopes for demand recovering strongly.
On that front, IAG shares rose over 3 per cent to the top of the FTSE 100 as the US and Europe move to reopen travel this summer and Britons look set to be able to resume foreign travel from 17 May. As US states declare further moves to open things up, the EU is looking to enable people from outside the bloc who have had both their vaccinations to travel freely to Europe this summer. Talks on the plans begin today. Whilst progress is slow, there is hope that by the summer holidays travel will be substantially more possible. Airline stocks were broadly higher. TUI and EasyJet topped the FTSE 250, which rose to within a whisker of its intra-day all-time high this morning.
Australia’s central bank left rates on hold but upgraded its outlook for the economy. Later this week the Bank of England is expected to do similar. The quarterly Monetary Policy Report should show better growth and higher inflation ahead as vaccines are working and enabling the economy to reopen as planned. The big question is over a taper of bond purchases. The thorny issue for policymakers is whether to use this meeting to announce how and when it will taper bond purchases. The yield on 10-year gilts is back to 0.84 per cent, close to the March peak at 0.87 per cent and could top this should the BoE signal it is ready to exit emergency mode. Policymakers may prefer to wait until June. Ultimately, the question about tightening is really one of timing, but the BoE cannot be blind to the economic data and this meeting could be the time to fire the starting pistol. The fact the furlough scheme is slated to run until September, the BoE has time on its hands and could wait until August. As far as sterling goes, also keep your eyes on the Scottish elections on Thursday, where a majority for pro-independence parties in Holyrood could up the ante in terms of a second referendum. GBPUSD tested 1.380 support yesterday before a rally ran out of steam at 1.3930 as it continues to hold the range of the last 2-3 weeks.
Gold touched the 100-day SMA and pulled back from the $1,800 area. MACD bearish crossover avoided for now but potential double-top at $1,800 could call for a deeper pullback.
Neil Wilson is chief markets analyst at Markets.com
