The FTSE 100 is underperforming the rest of Europe as a sell-off in tobacco and oil stocks are weighing on the index. 

Europe

British American Tobacco and Imperial Brands have given back some of yesterday’s gains, and Royal Dutch Shell and BP are in the red on account of the weaker oil price, as Hurricane Florence has been downgraded to a category two storm.

We heard from a number of central banks today. The Bank of England (BoE) maintained their policy and upgraded their growth outlook for the third-quarter. The European Central Bank (ECB) kept their policy unchanged, and confirmed that the monthly bond purchasing scheme will be lowered to €15 billion per month from October until December. The ECB lowered its growth outlook, and suggested monetary stimulus was still required, and that helped eurozone stocks.

Morrisons delivered a strong set of first-half results, as same-store-sales jumped by 4.9%, and second-quarter sales rose by 6.3% - its highest in nine years. Net profit fell by 29% to £142 million, but if you strip out debt restructuring costs and the charges relating to stock provisions, earnings increased by 9%. The debt reduction will lower interest payments which will help the group in the long-term. The firm’s turnaround process has clearly worked well so far, and there is still more work to be done. The interim dividend was increased by 11.4% by to 1.85p, and a special dividend of 2p was announced too, and that will keep shareholders on side. The stock has been in an upward trend since March, and if the bullish trend continues it could target the 275p region.

RBS shares are in demand today after it was reported the company could pay a special dividend of up to 33p per share. Last month the bailed out bank paid an interim dividend of 2p – its first pay-out since the credit crisis. The chatter of a special dividend suggests the financial institution has a strong balance sheet, and the prospect of an extra cash pay-out could capture trader’s attention.

John Lewis revealed a 99% drop in first-half profit and said that full-year earnings would be substantially lower than last year. When it comes to the retail sector, it is a race to the bottom in terms of price, and high street retailers are finding it tough to compete with online stores. John Lewis did not pass on the price inflation to customers, and prices were kept low to remain competitive, but that ended up hurting the bottom line. Expenses were higher as the company focused on rebranding and cyber security.  

US

Stocks got off to a positive start as the lower CPI reading took some of the fear away about higher interest rates. Yesterday’s announcement that the US are reaching out to China to restart trade talks is also helping investment sentiment.

US inflation cooled in August, on an annual basis the CPI rate fell back to 2.7% from 2.9%, and traders were anticipating 2.8%. Even the core inflation fell from 2.4% to 2.2% and that points to a dip in demand. Given that the Federal Reserve are in a hiking cycle, it is disappointing that the cost of living cooled. 

Apple share are higher today after the event yesterday which saw the launch of a new watch, and three new iPhones. The Apple series 4 watch includes an electrocardiogram, as well as other fitness services. This could be the beginning of the company moving away from a smartphone maker, and more towards a lifestyle company. Apple could be tapping into the lucrative health and fitness industry. The new iPhones had a tiered pricing range, and it seems like the firm wants to appeal to a wider range of customer, as $1,000 for a phone will be step too far for some customers.

FX

The US dollar fell in the wake of the latest inflation figures from the US. The greenback was trading in a small range recently but the disappointing CPI update prompted dealers to dump the dollar.

EUR/USD was helped by the slide in the dollar. Mario Draghi, the head of the ECB, said significant monetary policy stimulus is still needed, and warned about the rise of protectionism and the slowdown of emerging market economies, but the weakness in the dollar took precedence. There were mixed inflation figures from the two largest economies in the eurozone today. German inflation dipped from 2.1% to 1.9% - meeting estimates. French inflation held steady at 2.6%, in line with economists’ expectations.

GBP/USD was lifted by the BoE update and the weaker US dollar. The BoE kept rates and the asset purchase programmes on hold, meeting forecasts. The BoE said that consumption was stronger than expected, and it upped its third-quarter growth estimate to 0.5% from 0.4%.  

The Turkish central bank hiked interest rates to 24%, up from 17.75%, and Reuters were expecting a reading of 22%. A short while before the rate hike, President Erdogan stated he is in favour an interest cut, so the announcement caught some traders off guard. The Turkish lira jumped after on update, but it has only managed to claw back a small percentage of the ground lost in recent months. 

Commodities

Gold was nudged higher by the slide in the greenback and the metal has retaken the $1,200 mark. The commodity has been dragged around by the dollar lately, and now the fall in the US dollar had propped up the commodity. The metal is tested its 50-day moving average at $1,212, and if that metric is cleared it could target the $1,235 region.

Oil has sold-off heavily after Hurricane Florence was downgraded from a category four storm to a category two storm, and traders are scrambling to undo yesterday’s long positions when they though the US coastline was in for much worse weather. The International Energy Agency confirmed that OPEC output increased by 1.28%, and that added to the selling pressure. 

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