S&P 500 inches up to fresh record close

Friday 21:00 BST

What you need to know
● Oil prices rally after previous day’s slide
● S&P 500 ekes out tiny gain to close at record
● Sterling drops as poll shows tighter election race, FTSE 100 hits peak
● US GDP data add to case for Fed rate rise next month
● Gold jumps to four-week high
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Overview

Wall Street ended an impressive week on a steady note — eking out a tiny gain to a fresh record close — as oil prices recouped some of the previous day’s steep losses and the latest US GDP data reinforced expectations for a June rate rise.

Sterling’s drop to to a one-month low against the dollar was a key feature in the currency markets, after opinion polls suggested the forthcoming general election could be far closer than previously expected. The pound’s move helped the UK’s FTSE 100 share index reach a record high.

Hot topic

Oil markets remained at the centre of attention after disappointment at the outcome of the latest Opec meeting triggered the biggest one-day fall for prices since the start of 2016.

The sell-off came after Opec members agreed to extend crude output cuts until March 2018, with a number of non-Opec producers, including Russia, backing the decision.

“In hindsight, we can now clearly say that there must have been a substantial amount of anticipation in the market for not only an extension of cuts, but also for deeper cuts,” said Bjarne Schieldrop, chief commodities analyst at SEB.

But Harry Tchilinguirian, oil strategist at BNP Paribas, said it was hard to describe the meeting as disappointing when it swiftly agreed what had been flagged well in advance.

“The price action that day was more likely the result of the liquidation of positions taken earlier in the hopes of a positive twist to an otherwise forgone conclusion,” he said.

“The rebalancing narrative of the oil market is by no means derailed by this meeting. If anything, it is reinforced by producers’ resolve.

“Opec and non-Opec countries are singing from the same song sheet — all they need to do is maintain high compliance with pledged supply cuts.”

Oil price action was very choppy on Friday, but Brent finally settled at $52.15 a barrel, up 1.3 per cent — after swinging between $50.71 and $52.23 — following a 4.6 per cent slide on Thursday.

US West Texas Intermediate was 1.7 per cent higher in late trade at $49.73, after the previous day’s 4.8 per cent dip.

In focus

A fresh record high for the UK’s FTSE 100 share index came as sterling, took a hit from political uncertainty and some disappointing UK economic data.

A YouGov/Time opinion poll showed a dramatic narrowing of the Conservative party’s lead over Labour to just five points.

Furthermore, gross domestic product growth for the first three months of the year was revised down to 0.2 per cent quarter-on-quarter from 0.3 per cent.

“Our view that the pound’s recent rally can continue as the economy remains resilient and Brexit worries gradually ease has been dealt something of a double blow,” said Jonathan Loynes at Capital Economics.

“Both Theresa May, prime minister, and sterling bulls will be watching the remaining economic data to be released ahead of the election closely, not least the consumer confidence figures on May 31.”

Sterling was down 1 per cent against the dollar at $1.2808, the lowest since April 26, and 0.7 per cent softer versus the euro at €1.1467.

Equities

The choppy nature of trading in oil markets on Friday left energy stocks flat in the US — in turn helping to keep the S&P 500 index reined in following its rise to record closing and intraday highs on Thursday.

But the US equity benchmark still managed to edge up marginally to a record close of 2,415.8 as activity wound down ahead of the long weekend break. It was the seventh rise in a row for the index.

For the week, the S&P gained 1.4 per cent.

There was a similarly cautious tone across much of Europe on Friday, with the pan-regional Stoxx 600 index and the Xetra Dax in Frankfurt both slipping 0.2 per cent.

Weakness in energy stocks hobbled both the Japanese and Australian stock markets, with the Topix index off 0.6 per cent and the S&P/ASX 200 down 0.7 per cent — the latter also pressured by declines for miners as China’s iron ore prices hovered near seven-month lows.

Hong Kong’s Hang Seng was flat and remained near its highest level since July 2015, while the Shanghai Composite gained 0.1 per cent. China stocks have recovered their poise since Moody’s on Wednesday downgraded China’s sovereign ratings to A1.

Forex and fixed income

The euro was down 0.4 per cent against the dollar at $1.1168 as the US currency found some support from a larger than expected upward revision to US first-quarter GDP growth to an annualised pace of 1.2 per cent.

“Somewhat faster GDP growth in the first quarter, coupled with slightly higher core inflation, further strengthens the case for another rate hike in June,” said Harm Bandholz, chief US economist at UniCredit.

Nevertheless, the yield on the 10-year US Treasury slipped a further 1 basis point to 2.25 per cent, leaving it flat for the week.

The 10-year German Bund yield fell 3bp to 0.33 per cent yesterday, for a five-day decline of 4bp.

Elsewhere, the dollar was down 0.5 per cent against the yen at ¥111.24.

Gold rose to a four-week high of $1,267 an ounce, up $12 on both the day and the week.

Additional reporting by Peter Wells in Hong Kong

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