FTSE 100 record and oil boom

by from interactive investor |

European equity markets are higher Friday, following on from new US highs and the 14th straight day of gains in Hong Kong.

Recent market highs have been based on expectations of higher global growth and increased corporate earnings, so the start of the US earnings season today is a major market event. Investors will be hoping that both top line growth and high margins can lead to substantial earnings growth and justify current equity valuations.

A fall in US stockpiles after a savage cold snap across North America, coupled with confirmation that OPEC, Russia and other oil producers will retain their supply constraints throughout 2018 has been enough to push the oil price sharply higher over recent sessions, with Brent briefly hitting $70 a barrel yesterday for the first time in three years as the energy bull run ramps up.

With the oil price having risen so far, so fast and with net long non-commercial positions in crude oil at historically elevated levels, the key question for investors is whether the current price levels are sustainable or if yesterday was the short-term high?

After a torrid week so far, which has seen share prices in the sector fall sharply, housebuilders are enjoying a more positive day, as Bovis Homes delivered better than expected results, sending its share price higher and giving the sector a boost.

Balance sheet issues and customer satisfaction problems have caused considerable concern for Bovis in the past, but both these issues appear to be under control. An 11.3% reduction in completions is a concern, but average sales price increases of 7% have offset this slightly.

The positive news for investors is confirmation that Bovis is promising higher dividends, which has come as a huge relief to its main base of income investors. Overall, it looks like the major issues of the past are being managed well and investors are breathing a sigh of relief.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.