European equity markets got off to a bullish start in early trading but in the past few hours, a lot of those gains have been eroded. 

Europe

The FTSE 100 is in negative territory, while the DAX 30 and the CAC 40 are still up on the day. Mining stocks, like Rio Tinto, BHP Group and Anglo American are putting pressure on the FTSE 100. BP and Royal Dutch Shell are hurting the British index too. The frosty relationship between China and the US has thawed a little as the countries had constructive trade talks. The mildly positive news was one of the reasons behind the strong start to the session, but the impact seems to have largely worn-off. There is some optimism circulating in relation to a Covid-19 drug too, as AstraZeneca has started initial trials on a potential vaccine, and on a possible treatment. The fact the strong start to the trading session couldn’t be sustained points to an absence of conviction on traders’ part. It feels like many market participants are sitting on their hands ahead of the Jackson Hole Symposium.                

DFS Furniture shares hit their highest level since late June on the back of their bullish update. The lockdown prompted many people to spend more money doing-up their homes, and that helped DFS. Presumably, some individuals felt that if they spend more time at home, they ought to make their time at home more enjoyable. The company said that orders for the six week period are approximately £70 million higher than the same timeframe last year. DFS said that trading recently has been significantly higher than initial forecasts. The board of directors is content with the company’s financial position in terms of the balance sheet, but management expressed caution in relation to the outlook because of the pandemic.   

Aveva shares are higher this afternoon after the company finalised the details of its $5 billion takeover of OSlsoft. The deal will be financed by a $3.5 billion rights issue and debt. The move should bolster the company as it will be able to offer services that complement each other, such as industrial software and data management. Aveva believe the transaction will bring about cost saving synergies, it will assist the cross-selling of services, and it should help the company build upon existing relationships. Aveva shares hit an all-time in February, just before the pandemic struck, but it has recouped roughly 70% of the ground it lost as a result of pandemic sell-off. If the stock clears the mid-August highs, it could go on to target the 4,800p area.

The UK housebuilding sector is under a little pressure. Bellway, Barratt Developments, Redrow and Persimmon are all in the red. Recently there has been some positivity surrounding the property market, and Rightmove, described the level of activity as a ‘mini boom’.        

Citigroup, Credit Suisse and Barclays have all raised their price targets for Bunzl – the group reinstated its dividend yesterday as well as posting respectable first half results.    

US

The major indices are a mixed bag this afternoon, but the common theme across the board is low volatility. The news of the slightly improved trading relationship with China has done little to influence stocks but then again, the S&P 500 and the NASDAQ 100 were coming from a lofty position. The Conference Board consumer confidence reading dropped from 92.6 in July to 84.8 in August, it is likely the ending of the pandemic-related unemployment benefits has prompted consumers to be a little more careful when it comes to spending money. The housing data was mixed, the Case Schiller HPI reading for June showed zero growth on a monthly basis while new home sales report for July jumped to 901,000, up from 776,000 in the previous update.        

Best Buy posted its second quarter figures. The numbers were impressive but the group cautioned that revenue might be tapering-off. Total revenue rose by almost 4% to $9.91 billion, and that was a touch higher than the consensus estimate of $9.71 billion. Comparable sales increased by 5.8%, topping the 3.7% forecast. The online business had a stellar performance as domestic comparable online sales surged by over 240%. EPS was $1.71, which comfortably exceeded the $1.01 forecast that equity analysts were expecting. The retailer is still not providing a guidance, which is not a major surprise. The stock is in the red but keep in mind it hit an all-time high yesterday, so it appears a lot of good news was already baked into the price.

UBS has lifted their price target for Google’s parent Alphabet, to $1,970 from $1,600. 

Exxon Mobil, Pfizer and Raytheon Technologies will drop out of the Dow Jones, while Amgen, Honeywell and Salesforce.com will be added to the well-known equity benchmark.

Citigroup raised its price target for Gap to $24 from $12. The bank also lifted its outlook to buy from neutral. Gap will announce its second quarter numbers on Thursday.    

FX

EUR/USD and GBP/USD have been lifted by the negative move in the dollar. The greenback enjoyed a large move higher on Friday and since then it has been trading within a range. The greenback has yet to snap out of the wider bearish trend that has been in place, but at the same time, it is comfortably above its recent lows – which were 27 month lows.

EUR/USD has also been helped by the latest data from Germany. The second quarter GDP reading was revised to -9.7% from -10.1%. The German IFO business climate update for August was 92.6, it was the highest reading in seven months.

The CMC GBP index has pushed higher despite the poor UK CBI realised sales numbers. The reading for August was -6, down from 4 posted in July, and it greatly undershot the 8 that economists were expecting. Sterling has been range bound recently, and it seems that dealers are waiting for a development in the EU-UK negotiations.       

Commodities

Gold is in the red. It is almost as if the metal is caught between the upward pressure from the slide in the US dollar, and the downward pressure coming from the overall risk-on attitude. In recent months, the dollar weakness has typically assisted the metal. At the same time, the commodity has a history of falling when dealers are snapping up stocks in an effort to take on more risk. The positive news in relation to the US-China situation, seems to have hit gold. While it remains above $1,900, the broader bullish trend is likely to remain in place.

Brent crude and WTI are showing decent gains on the back of the rough weather in the Gulf of Mexico. Hurricane Marco is tipped to decline in force while storm Laura is expected to be declared a hurricane. Production in the region has been disrupted as workers have been flown out from the oil platforms. The optimism surrounding the US-China trade situation has boosted the energy market too. 

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