Market Comments

Dovish sentiment has dominated the markets as the UK falls into deflation.

UK Markets

News that the UK fell into deflation for the first time since 1960 was felt keenly in the UK markets today as traders considered the impact this would have upon monetary policy at the BoE. Quite frankly, it is unlikely to change much, with widespread expectations that this will be a fleeting brush with negative price growth given that today's figure was comparing with last year when oil prices were circa $115. Meanwhile, the eurozone has been in a much more buoyant mood following the news that the ECB will be 'front-loading' its QE programme, which should help circumnavigate any difficult periods that could include a possible Grexit. And that may be needed, with Greece now two and a half weeks away from that first €301 million IMF payment which leads into a two-week period where a total of approximately €1.5 billion will have to be repaid.

One of the biggest losers in the UK has been Vodafone who, despite announcing its first rise in quarterly sales in almost three years, has seen over two billion pounds of value wiped off its market cap today. An increase to dividend payments and revenues was clearly not enough for the stock price to continue its effervescent rise seen in recent weeks, with today's technical breakout looking like the beginning of a longer downtrend in Vodafone. Wonga has emerged with a new 'responsible' image as the plastic dolls are replaced with humans from the 'real world'. Frankly, it will take more than a rebrand to undo the damage to Wonga's reputation which saw footballers refuse to play in a shirt sponsored by them and the Church of England promise to fight to devalue its business.

US Markets

US markets probably enjoyed the matinee more than the headline show today, as substantial gains in the futures markets saw the Dow create yet more record intraday highs, only to see those eroded upon hearing the opening bell. Nevertheless, the bulls are expected to return to the latter part of the US session as the bullish sentiment continues to dominate driven by today's dovish ECB comments, which alluded towards a rise in asset purchases from the ECB over the coming two months. However, if history has taught us anything, the creation of new all-time highs in the Dow often has a habit of reversing lower very soon after creating a new high, so for that reason I am always a little concerned at the sight of new highs.

Wal-Mart is the suffering the biggest losses in the Dow today, following the news of that despite consumers having more money in their pockets, thanks to rising employment and falling oil prices, they have failed to capitalise leading to a fall in Wal-Mart net profit to $1.03 from $1.11, this time last year. This unwillingness of consumers to spend the extra disposable income generated from falling oil prices has been felt in both the UK and US, where retail sales figures have been unexpectedly downbeat. Conversely, Home Depot shares spiked higher today, following a rise in both net income and sales, leading to positive revisions to sales and profit targets going forward. Despite a cold winter, it seems the brand and products are strong enough to weather the storm coming into the traditionally strong summer months.

Commodities

Call it the return of dollar strength or crude oil weakness, but the value of both Brent and US light crude have been falling today, pointing to an increasingly likely scenario that we are about to begin another period of weakness for the black stuff. Substantial US stockpiles remain waiting to be sold, and with higher prices comes an increased likeliness that some of those higher cost frackers will be able to reinitiate operations and raise supply.

FX

GBP/USD and EUR/USD are showing significant signs of weakness today, driven primarily by fundamental causes in the form of the ECB announcement and UK CPI figure. Nevertheless, the writing had been on the wall with a recent resurgence in dollar strength personified by a spike higher in the dollar index. With GBP/USD having completed a 50% retracement of the July 2014 - April 2015 selloff, I can see the possibility of a strong move lower in the coming weeks.