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European markets slip back from their highs as China stimulus boost effect fades

European markets have struggled for gains today in the absence of US trading, as the initial boost of a China stimulus-inspired rally from Asia markets has started to fade, even though basic resources have outperformed. 

Europe

Asia markets saw a strong session on signs that China’s recent stimulus measures were helping to boost the property sector.

A jump in China new home sales helped to lift the Hang Seng to 3-week highs, following on from the Friday boost delivered by a US jobs report which added to the argument that the Federal Reserve would be able to keep rates on hold when they meet later this month.

Today’s initial gains have been tempered somewhat by caution that the rally in Asia might be largely a knee jerk response to a narrow rebound in housing sales in two Chinese cities, with the bigger test set to come tomorrow with the return of US markets.

The biggest movers have been led predominantly by the likes of Glencore and Rio Tinto, while the travel sector is also enjoying a solid day after Ryanair and Wizz Air reported a strong increase in August travel numbers from the same period a year ago.

Harbour Energy shares initially popped higher after it announced it had signed a $330m deal with Wood Group to look after its North Sea oil and gas operations for the next 5 years, with the options of five one-year extensions at the end of that term.    

US

US markets are closed

FX

The pound is the best performer today as it seeks to pare back the sharp declines of the last 2 sessions, after last week’s ONS GDP updates showed that the UK economy is in a much stronger position than was originally thought. The upward revisions of UK GDP also point to a UK economy that has proven to be a lot more resilient than originally thought despite the incompetence around a large part of the UK government’s fiscal policy. What this means for monetary policy is slightly harder to judge, although expectations about the number of rate hikes we can expect to see are slowly coming down.

The Australian dollar is also in focus ahead of tomorrow’s RBA rate meeting where rates are expected to be kept unchanged at 4.1%. Recent weakness in PMIs has seen a drop in contraction territory, while the latest jobs data saw 24.2k full time jobs lost. When part time roles are included that was a net loss of -14.6k jobs lost in July, although those losses were off the back of 107k new jobs added over May and June.   

Commodities

Crude oil prices are treading water near to their highest levels this year, as the prospect of continued production caps into October, has more than offset the prospect of extra supply from the likes of Iran. The continued risk of a tighter market is helping to drive markets higher, raising the prospect that if Chinese demand does pick up in the second half of the year, prices could jump through $90 a barrel thus posing further upside risk to sticky inflation.

Gold prices briefly hit one-month highs on Friday in the wake of the US jobs report, as yields fell sharply. They’ve since retreated from those peaks, after yields rebounded from their low points. We should get a better idea of overall direction when US bond markets return tomorrow, however in the short-term prices do look a little overbought at $1,950.   


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