The FTSE 100 is set to finish the day firmly lower as fears for the health of the global economy are weighing on the index. 

Europe

Energy and mining stocks have incurred heavy losses as the underling oil and metals markets are lower due to the fear that demand for the commodities will drop. The FTSE 100’s disproportionally large exposure to the natural resources sector is the reason why it is underperforming against other major European markets. Banks are suffering too, but that isn’t a surprise given the compression in the UK government bond yields, and bank’s profitability is usually hit in lower interest rate environments.        

GVC holdings revealed a largely positive set of first-results. On a pro-forma basis, net gaming revenue jumped by 5% to £1.8 billion, which topped forecasts. Underlying pre-tax profit came in at £212 million. The online division is becoming a larger part of the business, and the operation saw a 17% increase in revenue. The group issued an optimistic outlook, and that caught traders’ attention. GVC expects full-year earnings to be between £650 million and £670 million, which topped the forecast of £630 million.     

Walmart, Asda’s owner, cited Brexit jitters for the underwhelming performance, but Lidl and Aldi are still expanding at a solid rate so shoppers are becoming savvier. The lower profit margin at Asda is concerning, but is typical of the current climate. Walmart is considering an IPO for Asda as a way of getting rid of the group, but seeing as the British supermarket sector is only trundling along, I doubt it will be on many investors shopping lists’.

RBS shares are in the red after HSBC downgraded the stock to hold from buy and the price target was cut to 210p from 260p. The move by HSBC follows on from the Australian bank, Macquarie, who downgraded the stock yesterday, and it appears the double downgraded in quick succession has rattled the share price. RBS has large exposure to the UK lending market, and given the inversion of the UK 2 year and UK 10 year yield curve, the perception is that RBS’s lending margins are likely to be squeezed. 

Commerzbank and Deutsche Bank shares have sold-off today after Olli Rehn of the European Central Bank, hinted at a big stimulus package in September, and that has weighed on the banking sector as traders feel their lending margins will be hit hard.

US

The US economy continues to perform well despite the pessimistic headlines, and the plunge in US government bond yields. Retail sales jumped by 0.7%, which topped the 0.3% forecast, and was a nice improvement on the 0.3% posted in June. The jobless claims rate ticked up to 2220,000 from 211,000, but the rate is still very low in the grand scheme of things. The Philly Fed business index cooled to 16.6 from 21.8, but topped the 10 forecast. While people are in jobs and spending their wages, the economy should tick along nicely. The S&P 500 is fractionally higher in light of yesterday’s massive drop.         

Walmart shares are in demand after the company posted an impressive set of second-quarter numbers. Revenue ticked up by 1.8% to $130.38 billion, which was marginally below forecasts, but EPS and same-store-sales topped forecasts. EPS came in at $1.27 and same-store-sales increased by 2.8%, while the consensus estimate was $1.22 and 2.1% respectively. Walmart confirmed 75% of the country is covered for next-day delivery for certain items. The group has been ramping up its online division in a bid to fend off Amazon, and Walmart said that e-commerce sales jumped by 37%, and this is a clear sign the group is holdings its own in the world of e-commerce. The retailer lifted its guidance for EPS and same-store-sales, and that was the icing on the cake of a great update.    

Cisco systems revealed mixed figures last night, and the stock is in the red today. EPS was 83 cents, which was slightly ahead of the 82 cents forecast, and revenue was $13.43 billion and that was fractionally above forecasts too. The trade spat between the US and China had a ‘significant impact’ on the business, and revenue from the Chinese division dropped by 25%. The group’s less-than-optimistic outlook rocked the stock price. EPS are expected to be 82 cents, while equity analysts were expecting 83 cents, and revenue growth is expected to be between 0% and 2%, while dealers were anticipating growth of 2.5%.

Alibaba registered impressive quarterly figures. Revenue jumped by 42% on an annual basis. The non-GAAP diluted EPS was 12.55 yuan, while the dealers were expecting 10.25 yuan. The e-commerce giant saw a 44% increase in its core commerce business. The number of active clients increased too, the majority of which were from less-developed Chinese cities, and that underlines the growing middle class. Cloud computing revenue jumped by 66% on a yearly basis, and that it is encouraging to see strong growth in a booming sector.        

FX

GBP/USD has rallied today on the back of the respectable UK sales data. Retail sales last month ticked up by 0.2%, and economists were anticipating -0.2%. It was the latest in a sting of positive economic updates from the UK this week, and accumulation of positive updates drove the pound higher. 

EUR/USD is still suffering from the negative German GDP update yesterday, and the largely positive US economic data today compounded the move lower. Traders are fearful that Germany is heading towards a recession, and at the same time, they are wondering if the Fed will cut rates next month in light of the strong US retail sales figures today. Mr Rehn’s comments about a stimulus package next month hurt the euro too.   

Commodities

Gold is a touch higher as a lot of nerves remain in the global equity markets. The commodity is comfortably above the $1,500 mark and while its remains above that level, the bullish move is likely to continue.

WTI and Brent crude oil are lower again today as traders are worried about the health of the global economy, and in turn feel that demand for oil will dwindle. The recession word have bandied about a lot in the past 24 hours and that has chipped away at market confidence, and until the economic backdrop improves, the outlook is likely to remain bearish.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.