European markets end the week on a high note
Financial shares were boosted by the prospect of Donald Trump rowing back on regulation, while a rise in the oil price after new US sanctions on Iran lifted energy stocks. So markets moved sharply higher, with the FTSE 100 recording its best one day rise so far this year. Even a fall in mining shares as China raised interest rates could not undermine the positive mood.
Better than expected US jobs figures also gave some support, pushing Wall Street higher and the Dow Jones Industrial Average back through the 20,000 level. The final scores in Europe showed:
- The FTSE 100 finished up 47.55 points or 0.67% at 7188.30
- Germany’s Dax rose 0.2% to 11,651.49
- France’s Cac closed up 0.65% at 4825.42
- Italy’s FTSE MIB was 1.2% higher at 19,116.04
- Spain’s Ibex ended up 0.6% at 9462.7
- In Greece, the Athens market added 0.94% to 628.92
On Wall Street, the Dow Jones Industrial Average is currently up 0.9% at 20,062, above the 20,000 barrier for the first time all week.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back on Monday.
President Trump’s action on financial regulation is imminent it seems:
Oil prices are higher as the US unveiled a number of new sanctions on various companies and individuals following a recent missile test. Reuters reports:
The United States on Friday sanctioned 13 individuals and 12 entities under its Iran sanctions authority, days after the White House put Tehran “on notice” over a ballistic missile test and other activities.
In a statement on its website, the U.S. Treasury listed the sanctioned individuals and entities, some of which are based in the United Arab Emirates, Lebanon and China.
The move is the first against Iran since U.S. President Donald Trump took office on Jan. 20. The sanctions were similar to actions taken by the Obama administration targeting Iran’s ballistic missile network.
The new designations stuck to areas that remain under sanctions even with the 2015 nuclear deal in place, such as the Islamic Revolutionary Guards Corps (IRGC) and Iran’s ballistic missile program.
“Today’s action is part of Treasury’s ongoing efforts to counterIranian malign activity abroad that is outside the scope of the JCPOA,” Treasury said, a reference to the nuclear deal between Iran and world powers.
Among those sanctioned on Friday were companies, individuals, and brokers the U.S. Treasury said support a trade network run by an Iranian businessman, Abdollah Asgharzadeh.
The news has seen Brent crude and West Texas Intermediate climb around 1%.
There is a fine line to tread when making changes to Dodd-Franks, said Jasper Lawler, senior market analyst at London Capital Group:
Reports that Donald Trump is preparing to scale back financial regulations in the US is a boon for multinational ‘megabanks’ which have seen profits drop since the heady days before the 2008 financial crisis.
Shares of Visa, Goldman Sachs and JP Morgan were all atop the US benchmark. There was observable shareholder glee that an era of ever-expanding regulation could be coming to an end under Donald Trump.
Since Dodd Frank was introduced, banks have devoted a lot more capital towards compliance and have had to decrease leverage, both of which are a direct hit to profitability. If Dodd Frank is watered down, that’s a direct boost to the bottom line for banks.
The changes to Dodd Frank are likely to be small to begin with but Trump is shifting the direction of travel from more regulation to less regulation. That’s a good thing for the financial sector, and less red tape is good for corporate America as a whole. Trump turning his attention to deregulation could be just the boost Wall Street needs to send the Dow back above the 20,000 mark.
Too much regulation favours the large institutions who can afford the extra compliance costs.
Unwinding some of Dodd Frank is a good thing because it will enable smaller community banks to compete, offering competition to consumers.
Repealing too much of Dodd Frank puts the entire system at risk of a repeat of 2008. The red line is the Volker rule; if the big banks can engage in proprietary trading, then depositors will be put at much greater risk.
President Trump is meeting with business leaders and it appears the plans for the financial sector are on the agenda:
Unlike the Markit survey, another report on the services sector has come in below expectations, although still showing a strong performance.
The ISM non-manufactuing PMI was 56.5 in January, virtually flat on the 56.6 recorded the previous month and slightly below expectations of a figure of 57.
Meanwhile factory orders in December rose by 1.3% compared to estimates of a 1% increase, and a 2.3% fall in November.
Back with the Dow, and it is clear that the financial sector is on the rise thanks to the idea that Donald Trump will row back on regulation:
US service sector beats expectations
The first of two surveys of the US service sector has shown a better than expected performance last month.
The Markit service sector PMI for January came in at 55.6 compared to an initial estimate of 55.1 and December’s figure of 53.9. This was the highest reading since November 2015.
The Markit Composite index, which includes services and manufacturing, was 55.8, up from 54.1 in December. Chris Williamson, chief business economist at IHS Markit said:
The US economy has started 2017 on the front foot. Business activity across the economy is growing at the fastest rate for over a year and optimism about the business outlook has risen to the highest for a year and a half.
The January surveys signal annualized GDP growth of approximately 2.5%, setting the scene for a solid first quarter. With January seeing the largest inflow of new business for 18 months, there’s good reason to believe that firms will be even busier in coming months.
Even more encouraging is the ongoing impressive rate of job creation, with the January PMI numbers comparable to around 200,000 jobs being added.
A waning of price pressures takes some heat off the Fed, though the sustained strong output and jobs growth signalled by the surveys will fuel speculation that the next rate hike will be sooner rather than later, with June looking most likely.
Wall Street opens higher
US markers are on the rise after the better than expected headline jobs figure, with financial companies also benefitting from the prospect of looser regulation if Donald Trump scraps the Dodd-Frank legislation.
The Dow Jones Industrial Average is currently up 96 points or 0.48% while the S&P 500 opened 0.4% higher and the Nasdaq Composite 0.26% better.
The mixed picture from the non-farm figures – positive jobs numbers, weaker than expected wages growth – also saw some volatility in the currency markets as traders tried to work out the implications for US interest rates. Kathleen Brooks, research director at City Index, said:
The dollar initially reacted positively, however, within minutes the dollar index backed off highs as the foreign exchange market took stock of some of the weaker elements of the report. US stock market futures moved higher and are predicting a stronger open for the Dow, S&P and Nasdaq. However, the bond market was less impressed, and US treasury yields fell across the curve, the two-year yield is currently down 5 basis points, which could weigh on the buck further on Friday.
We don’t think that today’s non-farm payrolls report, on its own, will be a game changer for the Fed, and the market is still pricing in the prospect of another rate hike from the Fed by mid-year; after all wage growth at 2.5% is still above the Fed’s target inflation rate. However, we will be watching the development of wages, which are a key metric for the Federal Reserve going forward. If they don’t pick up again for February then Federal Reserve rate hike expectations may start to get pushed further out to the second half of 2017, which could limit dollar upside in the medium term.