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Macro overview

06744 CC Trader Talk V2

Friday recap

Markets in Europe closed mixed on Friday as geopolitical tensions remained in focus after the United States President Donald Trump’s announced that he’s pulling his country out of the Joint Comprehensive Action Plan for the Iranian nuclear program earlier in the week. In the meantime, European Central Bank President Mario Draghi said earlier that the financial crisis that started one decade ago has "revealed some specific fragilities," which remain unresolved.

German DAX lost 0.16% at the end of the trading session. In Paris, the CAC 40 fell 0.10% at the close. London’s FTSE 100 finished 0.35% in the green. Media company ITV was the main advancer, increasing 7.20%.

Macro overview

In the U.S, data from April Retail sales due on the 15th of May, growing just 0.4% excluding the automobile sector, will help shape the debate over how many times the U.S Federal Reserve will raise interest rates this year. The bonds markets are expecting at least two more increases. The extras spending and tax cuts worked positively, hopefully being translated into a robust economic performance.

In the U.K, the still-depressed levels of the British Pound is drawing attention from foreign buyers. Furthermore the fact that stocks are trading at a discount when compared to their long-run average are being eyed by investors.

Oil prices are the highest since 2014, and the surge seems to be holding on. In fact the $80 per barrel is within sight for Brent Crude. The U.S decision to pull out of the Iran nuclear and re-impose sanctions has pushed the price of oil higher. If this surge continues, one has to question how this will impact inflation and central bank policy.

After weeks dangling, Italy may soon have a new coalition government made up of the far-right League and the anti-establishment 5-Star Movement. For the markets this tie-up between the said parties is the worst case scenario and both groups are very hostile to the EU budget restrictions and have made electoral pledges that would cost millions (if not billions) of euros to implement. In fact one can see the cost of insuring the Italian debt against default has gone up, with bond yield hitting seven weeks highs and shares set for their biggest weekly fall in seven weeks.

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