market relief

Equity markets are in the red as we approach the close of trading, as concerns about China and Italy prompted traders to dump equities.

Europe

The Chinese central bank lowered the reserve required ratio again (RRR) – the fourth time this year. The move is viewed as a sign of weakness and dealers are fearful the Chinese economy is cooling at a quick rate and needs support. Beijing and Washington DC are still locked in a trade spat, and trimming the RRR could be construed as an indication that they are in it for the long haul.

The yield on the 10-year Italian government bond hit its highest level in over four years, as the Rome administration is set to be on a collision course with Brussels over the budget deficit. Matteo Salvini, the joint deputy prime minister, confirmed the country will not be dropping the euro, but he asked that the ratings agencies be fair when assessing Italy’s credit worthiness. Investors are nervous about the prospect of an already very indebted nation potentially clocking up even more debt.

Reach shares have fallen today after the newspaper group reported a 20% fall in third-quarter print advertising, and circulation declined by 4%. Group revenue ticked up by 21%, but that was largely due to the takeover of Express & Star. Digital revenue rose by 7%, but it wasn’t enough to entice dealers. The industry is struggling, and that has been reflected by the share price performance recently. The stock has been in decline since 2014, and if the bearish move continues it could target 50p. 

Schroders said it is in talks with Lloyds about potentially working together in the wealth management arena. Recently there has been speculation that Schroders would obtain the £109 billion contract for Lloyd’s Scottish Widows business.

Hammerson shares are a little higher this afternoon after the property company announced it is selling half its stake in Highcross shopping centre for £236 million – which is at a 5% discount to the December book valuation. The fund raised will be used to remodel an old House of Fraser store. The group set out a target to dispose £600 million worth of property this year, and they have achieved 90% of their aim.

US

Stocks are a little lower today as dealers continue to be worried about the possibility of more rate hikes from the US central bank. Today the US celebrates Columbus Day, and the government bond market is closed, so we could see low volatility on the stock exchange. The yield on the 10-year hit a fresh seven-year high on Friday, and dealers are using that as a cue to exit the stock market for fear of higher rates. The Fed have upped interest rates three times in 2018, and traders are pricing in a high probability of a hike in December too. The inflation report on Thursday will be closely watched and further advances in government bond yields could put additional pressure on stocks. 

FX

The greenback is stronger today as traders are worried the Federal Reserve will continue down the path of hiking interest rates. The US non-farm payrolls on Friday was a mixed bag, but the fall in unemployment and positive revision to the August figures left traders thinking we could see additional rate hikes from the Fed over the next 12 months.

EUR/USD is in the red on the back of the firmer US dollar, and the underwhelming data from the eurozone made matters worse. German industrial production slipped by 0.3%, while economists were anticipating and an increase of 0.4%. The eurozone sentix investor confidence survey slipped to 11.4 – its lowest reading in four months. This unimpressive figures from the currency bloc also put pressure on the euro. 

GBP/USD is also lower on account of the firmer US dollar. The toing and froing around Brexit is still going on, and is likely to hang over the pound. A spokesperson for Downing Street said that movement will need to come from the EU side, and this shows us that Prime Minister May is holding to her position. 

Commodities

Gold is in the red because of the firmer US dollar. The metal has finally experienced some volatility after a few sessions of bouncing around a tight trading range. The commodity has fallen back below its 50-day moving average at $1,199 and while it holds below that metric its outlook is likely to remain negative.

Oil has taken a knock today after it was reported that two large importers of Iranian oil said they would continue trading with the regime, even after the US sanctions are due to be implemented, and traders are not as fearful about supply being hit as they once were. Dealers are also a little worried that the likes of China are growing at a slower rate, and their appetite for oil will slide. WTI and Brent crude may have lost ground recently, but their upward trends are still intact.

 

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