Trading in Europe has been lacklustre and the major indices are set to finish in the red.
Europe
This morning there was some excitement as Shinzo Abe, the prime minister of Japan, announced he was stepping down for health reasons. The surprise announcement made a lot of headlines, but it didn’t have a huge impact on stocks in Europe. Things have been a little directionless today, partially because there has been a lack of local news, but it is likely that UK-based traders are winding down ahead of the long weekend.
Bayer shares fell to their lowest level since April after the company cautioned it hit a few ‘bumps’ in relation to wrapping up the $11 billion settlement which is a result of the Roundup weed killer scandal. The product in question is alleged to have caused cancer and the German company is hoping to draw a line of the scandal, but while there are concerns the final payment could top $11 billion, the stock price is likely to remain under pressure.
Plastics and fibre supplier, Essentra, is pursuing more environmentally friendly policies. By 2040, the company is aiming to be carbon neutral and by 2025 it is aiming to source 20% of its raw materials and packaging from sustainable sources. The firm confirmed that first half revenue and adjusted operating profit fell by 11.7% and 26.4% respectively. Margins dropped from 22.5% to 18.4%. The share price is a touch lower.
Waitrose has signed a deal with Deliveroo whereby it will offer a speedy delivery service for 500 of its products from five of its shops. It will start out as a 12 week trial. The decision comes as Ocado’s tie-up with Marks and Spencer will come into effect next week. The pandemic has highlighted the importance of having a robust delivery service, so Waitrose clearly wants to fend off M&S.
Polymetal shares are in demand on the back of the firmer gold prices.
US
The Dow Jones and the S&P 500 are fractionally higher. The mood is a little optimistic thanks to the solid economic indicators. Personal spending for July was 1.9%, topping the 1.5% forecast. While personal income was 0.4%, and the consensus estimate was -0.2%. The Fed’s preferred inflation measure is core PCE, and it jumped from 1.1% in June to 1.3% in July. The news comes one day after the Fed chief, Jerome Powell, said the bank would allow inflation to move higher than 2%. The final reading of the University of Michigan consumer sentiment was 74.1, up from the 72.8 posted in the preliminary update.
Gap shares are a touch lower even though the company’s second quarter results were initially well received. The quarterly loss per share was 17 cents, but that was narrower than the 41 cent loss per share that equity analysts were expecting. Sales in the three month period fell by 18% to $3.28 billion, which topped forecasts. The fashion house announced that its e-commerce business nearly doubled. Gap was already in the process of a restructuring scheme so it looks like the pandemic has sped along the process as it will close over 225 Gap and Banana Republic stores globally.
TikTok, the Chinese-owned video sharing app is facing a ban in the US, unless the group can spin off its US operation. It has been speculated the American subsidiary could be worth up to $30 billion. A string of US companies have been cited as potential bidders, such as Goolge, Twitter, and Oracle. Walmart said it is willing to partner up with Microsoft to purchase the social media group. On the face of it, the move by Walmart seems strange but TikTok could assist it with its marketplace business and advertising.
FX
The US dollar index is deep in the red as the broader rally in the yen has hurt the greenback. The surprise announcement earlier today that Shinzo Abe will resign as Japan’s prime minister has sent the yen higher because he is associated with extremely loose fiscal and monetary policy. The dollar managed to claw back of the ground it lost earlier on the back of the solid consumption and core PCE numbers – they point to higher demand.
GBP/USD hit a level last seen in mid-December 2019 earlier today because of the fall in the dollar. For much of August, the currency pair has been range bound but the setting of multi-month highs could pave the way for further gains. The lack of progress with regards to UK-EU talks has acted as an anchor for the pound – some traders are sitting on the fence until the political picture becomes clearer. Andrew Bailey, the head of the Bank of England, was speaking earlier as a part of the Jackson Hole Symposium, and he said the bank still has more monetary firepower. The extra stimulus might be called upon when the furlough scheme comes to an end in late October.
EUR/USD has also been lifted by the slide in the US dollar. The final reading of French GDP for the second quarter was -13.8%, unchanged from the preliminary announcement. The French CPI rate fell to 0.2% in August from the 0.9% posted in July. The tumble in CPI points to a drop in demand, which does not bode well for the second largest economy in the eurozone.
USD/CAD is in the red but it is off the lows of the session due to the slight recovery in the greenback. In June, the Canadian economy grew by 6.5% on a monthly basis, and that exceeded the 5.6% consensus estimate.
Commodities
Gold is up nearly 2% on the back of the fall in the US dollar. In recent months there has been a strong inverse relationship between the dollar and the metal. Three weeks ago the commodity hit a record high, and that was largely down to the bearish move in the greenback. While gold holds above the $1,900 mark, the wider bullish trend should continue.
WTI and Brent crude oil are in the red as the adverse weather that has struck Texas and Louisiana didn’t cause major disruption to oil refineries. Earlier in the week, the oil market traded higher as workers were removed from the Gulf of Mexico rigs. More recently there were fears that refineries in the states impacted could face flooding – which they didn’t. The broader uptrend in oil remains intact despite the negative move in the past two sessions.
