Energy focus helps shield FTSE 100 from wider declines

• European markets on the back foot despite improved French exports data
• FTSE 100 boosted by energy gains, although crude upside provides risk for wider sentiment
• Quiet day before inflation, central banks, and earnings focus

European markets have kicked off the day on a downbeat tone, with the DAX leading the declines on a day that looks largely devoid of any notable economic or earnings releases. Those losses are lessened somewhat for the CAC, with French trade data bringing a welcome rebound in exports that flew in the face of yesterday’s concerning 2% decline from Germany. Nonetheless, European traders have will be looking forward to a likely dovish tone from the ECB, with Thursday’s meeting expected to see Lagarde & co set the tone for a June rate cut.

The FTSE 100 has enjoyed a more upbeat start to the day, as the heavy commodity weighting helps drive outperformance for an often-underappreciated index. Energy markets are a particular concern for wider market sentiment, with continued gains for crude providing a stark reminder that the battle against inflation may not be over quite yet. Recent years have provided wild swings in inflation driven in no small part by the spike in energy prices, and traders will be keeping a very close eye on oil prices given the potential implications for monetary policy if we see a rise up to $100 a barrel for crude.

Looking ahead, traders will likely see today as the clam before the storm, with central banks, earnings, and inflation set to drive volatility higher over the final three days of the week. The expectation of a rebound in US inflation does raise the likeliness of a risk-off move that could benefit the dollar but come to the detriment of equity markets. While markets now price the June monetary policy decision as a coin-toss for the Fed, the likely rise in US CPI should provide a reminder of likely patient approach being taken by Jerome Powell & co.