Market Comments

Heading into the close, the FTSE 100 is edging lower, although indices in Europe are in full retreat as Greek fears return once more.

UK markets

The week ends with markets on the back foot, with the month of May finishing in a not very merry mood. As so many times before, investors find themselves going into a weekend with Greece teetering on the edge. This time, however, there may be no way back, and for the first time in the crisis it does seem as if a default and even a eurozone exit are on the cards within the next month. Data this morning confirmed that the Greek economy was back in recession, although that word understates the enormity of the economic black hole in which the country finds itself. One side or the other needs to back down soon, lest the eurozone find itself losing its first member and breaking a union that was supposed to be inviolate. Shareholders in Associated British Foods, the owner of Primark, will have reason to thank Goldman Sachs this afternoon, after the broker upgraded the firm and sent the shares moving rapidly higher. The Primark growth engine has been stuttering in the UK of late, but the broker’s optimistic assessment of its chances in the US has allowed the shares to push back above £30, a level around which they have traded since the beginning of 2014.

US markets

First quarter GDP in the US was confirmed to be weak, but not as bad as expected. Given that the American economy saw poor Q1 growth in 2014 before rebounding over the rest of the year, investors are hoping that history repeats itself. As a result, Janet Yellen’s comments from last week about a 2015 rate increase continue to hold sway, with indices duly selling off on expectation of higher rates later in the year. It is important to maintain perspective however, since all-time highs in the US were barely two weeks ago, nonetheless stocks have failed to find a convincing narrative to allow them to build on these gains, and instead a combination of Greece and a stronger dollar is still signalling that the summer is going to be a difficult for this long-running rally.

Commodities

It appears that hope springs eternal where oil is concerned. Prices have rallied this afternoon ahead of the OPEC meeting next week, but investors should be careful not to let one day’s rally obscure the broader backdrop. Falls in US rig counts appear to be bottoming out, helped along by the steady rise in prices during the spring, so once again the inexorable laws of supply look certain to kick in. If OPEC does as expected and keeps output unchanged, then the rally of recent months may be just a giant bull trap.

FX

The euro continued to rally off the week’s lows today, and brave souls might be feeling that the time has come for another push in the direction of $1.11 for EUR/USD. Next week’s ECB meeting could easily see the ECB upgrade growth forecasts, as the QE bounce in economic data continues. This will still be a short-term bounce in the ongoing march to parity, but the euro has delighted in returning from apparent oblivion before, and looks set to do so again.