Stocks fade after bright start; GBP gains on solid jobs data

Summary:

• S&P500 pulls back after hitting 5-week high

• DE30: No merger between Commerzbank and ING?

• GBP looks to gain as UK labour market remains strong

• Trump tweet weighs on the US dollar

US equities have built on their recent gains this afternoon after Wall Street opened brightly, with all the large-cap benchmarks trading higher. Since last Monday’s low there’s been an incredible run higher for stocks, with the S&P500 adding in excess of 6% and the most widely viewed US index began above the 2900 mark this afternoon for the first time in over a month. However, there has been some notable selling into the close in the past couple of sessions and the early promise has already begun to fade a little during today’s session.

A few days ago rumours surfaced that the German and Dutch governments may pursue merger of Commerzbank (CBK.DE) and the Dutch ING. Martin Zielke, CEO of Commerzbank, and Ralph Hamers, CEO of ING, were seen meeting at least twice recently. However, the odds were not in favor of the tie-up going through as there are significant regulatory hurdles towards cross-border banking mergers in the European Union. The case was even highlighted by the ING executives last week. The talks are said to have broken down already according to today’s Handelsblatt report. Note that tie-up of Commerzbank and ING had a potential to create the biggest bank in Germany as the two hold, respectively, second and third position on the German market.

The most recent UK employment figures have come in a little better than expected, with more jobs than forecast added in April while wage growth also beat to the upside. The unemployment rate remains near a multi-decade low, and all in all there’s very little here to suggest any weakness here. Despite this strong data, the overall picture for the UK economy remains one that is far from thriving and it looks to be simply treading water to be honest; but given the dual headwinds of ongoing political uncertainty and a slowing global economy the current level of activity could arguably be viewed as about as good as could be expected under these circumstances. With wages around these levels there would in normal times be growing calls for a rate hike from the Bank of England to see off the threat of inflation, but it remains highly unlikely there’s any change in policy any time soon given the unresolved Brexit situation.

There’s been a bit of movement in the US dollar after the following tweet from Trump, with the US president seeming to look to lean on the Fed once more. The US central bank meeting next week is keenly anticipated, with Friday’s NFP miss seeing calls for a rate cut grow increasingly vociferous. Trump almost comically chose to complain about tourist spots in Europe becoming crowded by blaming the weak currency before claiming that the Fed interest rate was to high and finally blaming “ridiculous quantitative tightening” on the central bank and claiming they “dont have a clue”. Next week’s Fed meeting is keenly anticipated and this could be one of the main market-moving events of the month.