Stocks retreat on month end

Subdued month end flows sent most global stocks lower for the day, as investors await the European Central Bank’s meeting and US unemployment data later on this week. European indices were hit the worst, led lower by banks and autos. Italian banks Banco Popolare and Banca Popolare di Milano were down more than 5%, and Volkswagen led most European autos lower after it revealed a slide in its quarterly profit. Despite ending the day in the red European shares logged good monthly performances, with the EuroStoxx 600 marking its best month since November 2015.

In the US, data on consumer spending and personal income showed a renewed pick up in the economy. Following a slow start to the year, consumer spending in April grew at 1% – the fastest pace in nearly 7 years. Household spending is a closely watched indicator in the US as it accounts for more than two-thirds of the economy’s output. Tuesday’s report also confirmed recent steady gains in personal income and signs of firming inflation.

In contrast, a recent monthly gauge of US consumer confidence fell in May, raising doubts on whether the rise in spending will be sustained into the summer period. The decline was the second in as many months, and took the index to a 6-month low. In sum, the outlook remains uncertain, making the release of next Friday’s non-farm payroll data all the more important.

The highlight from the stock market came from billionaire investor Carl Icahn, who disclosed he had acquired a “large position” in Allergan plc, the maker of Botox. Shares rose on the news and Icahn’s “endorsement” of the current CEO and his business plan for the company. Allergan is current completing the sale of its generics business to Teva Pharmaceutical Industries, a move which should free up $1 billion for acquisitions.

Chinese stocks got a month-end boost, posting their biggest 1-day gain in 3 months on growing expectations that mainland stocks could be added to the US’ market index provider, MSCI. An index of the 300 largest listed companies in Shanghai and Shenzhen rose 3.4%, as did the Shanghai Composite Index. Despite the day’s rally, Chinese stocks remain anchored to the bottom of Asia’s performance tables this year. The Shanghai stock market is down about 20% this year.

In the currency space the news was all about the British Pound, which fell across the board after the latest polls showed the ‘Leave’ campaign edging the ‘Remain’ vote by 45 to 42 basis points. The debate on whether Britain should remain in the EU is intensifying as the vote gets closer. The referendum is scheduled for the 23rd of June. A measure of sterling’s volatility against the US dollar – the currently most frequently quoted against the British currency – rose to a 7 year high. The move highlights how much investors are sensitive to changes in public opinion. The effect has however been contained thus far, since the usually more reliable telephone polls have consistently showed a lead of around 8 basis points for the ‘Remain’ camp.

Oil marked the 4th month of gains as futures edged over $50 in Tuesday trading. The popular commodity has been struggling to make further headway beyond what many consider a psychological price barrier. Oil prices have moved significantly on supply and demand concerns, and investor fear rallies such as the current one may induce producers to re-enter the market.

Gold registered its first monthly loss this year, as futures traded approximately 6% lower in May hurt by expectations of a US interest rate hike in the coming months. Silver and platinum fared worse, ending the month 10% lower.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.