Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 Index called to open +10pts at 7700, to continue rebounding from week’s lows after yesterday’s late rally into the market close. UK Index broke out of a week-long falling channel to potentially start a correction back towards May all-time highs of 7903. Bulls need a break above 7724 to continue the recovery. Bears require a break below 7640 to maintain the downtrend, albeit at a slightly shallower angle. Watch levels: Bullish 7710, Bearish 7670

Calls for a positive open are supported by broad-based gains on Asian bourses and previously on Wall St where equity markets across all sectors powered on to recover most of the week’s losses. Markets were elated by a prospect of compromise in the Italian constitutional crisis where leaders of political parties held 11th hour talks to try and salvage the situation and avoid a potentially ruinous snap election, sure to be seen as an Italian referendum on Eurozone membership (if not on Italian trust in EU itself). Early meetings between US and North Korean officials have been positive, with prospects of a June 12 Trump/Kim summit firming.

Oil prices rose sharply as disagreements arose between OPEC and Russia regarding the amount and timing of potential extra supply the oil-producing nations were ready to release into the markets, adding additional resilience to UK Index energy shares.

Dollar was weaker on the back of softer than expected US economic data (contributing to muted expectations for UK Index today), while EUR gained strength as markets were relieved that Italian saga has temporarily stepped away from the precipice. Gold rose slightly to $1303 overnight as the remaining political uncertainty was making investors cautious.

In corporate news this morning Johnson Matthey reported FY performance in line with expectations, with FY pre-tax profit -31%, revenue +17%, sales exlc. precious metal +7%, final dividend +7% (to 58.25p), confirmed medium-term guidance, with stronger H2 owing to seasonal factors.

FirstGroup FY adj. operating profit -10.4%, pre-tax profit -1.2%, blamed on Greyhound long haul challenges and onerous rail franchise contract provisions, confirmed broadly stable guidance for the rest of the year. CEO Tim O’Toole to step down with immediate effect.

CRH began  strategic review of its European distribution business, with goal to combine its European and US networks in a single global unit. Meggitt won $50M contract to supply wheels/brakes to Wizz Air, starting from 2021. CMA competition authority announced it won’t probe Informa acquitition of UBM, believing the transaction doesn’t warrant an investigation. Card Factory like-for-like sales -0.4%, owing to tough retail environment with fewer customers, on track to open 50 new stores.

In focus today will be Eurozone May inflation (10am), which is expected to accelerate, as well as US April Personal Income/Spending report (1:30pm), with Core PCE index expected to rise 1.8% from a year ago. Markets will be looking to see if Eurozone inflation will post a higher than expected price growth, as was the case with German inflation, with significant impact on FX markets.

Later in the evening focus will shift to US DoE Oil Inventories (4pm) to give indication for the future movement of oil prices and, conversely, UK Index Energy stocks. With private API inventories having posted a 1M build last night, expect some pressure to be put on the oil majors’ share prices further on.

A few Fed speakers are scheduled to appear today, including St. Louis President Bullard (11am, dovish, non-voting), once again speaking in Tokyo, as well as Atlanta Fed President Bostic (5:30pm, centrist, voting), participating in a moderated Q&A at conference in Florida, and Fed Governor Brainard (6pm, centrist, voting), speaking on economic outlook and monetary policy in New York.

Economy Ministers and Central Bankers from G7 group of major industrialised nations are also gathering today in Canada for a three day conference dedicated to the topic of “Investing in Growth that Works for Everyone”.

Big name US companies reporting quarterly earnings tonight include giant multinational wholesaler Costco, as well as retailer Dollar General Corp, discount chain Dollar Tree and financial software developer Workday.

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