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Europe lower as earnings season comes into focus

It’s been a slightly negative end to the week in Europe, with indices marginally in the red, while US futures are once again looking mixed as we await more earnings reports.

Earnings is very much front of mind right now, with central banks around the world having adopted a far more dovish approach in anticipation of a slowdown and some countries in Europe either in or bordering on recession. The US has got things off to a strong start against quite low expectations which has lifted equity markets there into record closing territory. The challenge is likely to be greater across Europe though, as the next few weeks may highlight.

Two banks that have suffered greatly over the last decade – RBS and Deutsche Bank – are the worst performers in their respective indices on Friday after they saw their share price slide in early trade despite reporting stronger than expected profits for the first quarter. RBS came under pressure after warning about the impact of Brexit uncertainty on the outlook while Deutsche’s results come at the end of a rotten week for the bank as it abandoned merger talks with Commerzbank.

The Spanish IBEX is one of the worst performers in Europe this morning ahead of the general election this weekend that is expected to deliver no majority government, which means potentially weeks of negotiations before the formation of another coalition government.

Oil looking overstretched

Oil prices are spending a third day in the red, coming off the highs that were reached earlier in the week after the US announced it would not extend waivers on oil imports from Iran, which had previously been afforded to eight countries. This was an unexpected development and triggered another rally in oil prices as traders weighed up the impact of up to a million barrels of oil disappearing, clearly not buying the line that the US, Saudi Arabia and UAE would fill the gap.

Inventory data will have contributed to declines of the last few days, with API and EIA both reporting large increases in stocks. Still, both WTI and Brent remain in a good position, although they are looking a little overstretched to the upside at this point. The last couple of peaks have come amid slowing momentum which is typically a red flag and may indicate a correction in prices.

Gold pushing against $1,280

Gold is trading higher for a third day and is pushing against potentially key resistance. It took a four months and numerous efforts before $1,280 gave way which was viewed as potentially a very bearish development but since then, the bears have struggled to really take hold. We’re now seeing this being tested from below for a third time and gold bulls may be having some success.

We’re trading slightly above $1,280 at the minute and if we end the week above here, bulls may be encouraged. That said, until we break above $1,310, we remain in a downtrend and while $1,280 would be a quick blow to gold bears, it doesn’t change this fact. $1,260 remains a key support level to the downside.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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