Equity markets bounced back today as traders swooped in to snap up relatively cheap stocks. 

The German market has rallied thanks to a jump in car manufactures. China are keen to keep the economy motoring along and Beijing are considering cutting the tax levied on car purchases in half. BMW, Daimler and Volkswagen are all higher today. China’s economy is cooling, and the policy would be aimed at boosting demand. The bullish mood has spread across Europe, but seeing as the geopolitical and economic risks still persist, the upward move might not last long.

German Chancellor, Angela Merkel, announced her plans to step down as leader of the Christian Democratic Union party (CDU), and she confirmed she will quit politics in 2021 when her term as Chancellor runs out. The announcement comes after the CDU won the election in the state of Hesse, but on a poor result. The news is a major blow to European politics as Mrs Merkel has been such an influential figure down through the years.

HSBC posted a 16% rise in third-quarter net adjusted profit to $6.19 billion, which topped the $5.7 billion that the firm had anticipated. Revenue for the three month period jumped by 8.8% to $13.8 billion. Operating expenses for the quarter dropped by 6.9%, which is a step in the right direction but costs ticked up by 2% on a nine month basis. Return on shareholder equity increased to 9.6% from 7.1%, and John Flint, the CEO, is aiming to push it above 11% by 2020. The stock has been in decline since January, and while it remains below the 200-day moving average at 703p, its outlook is likely to remain negative.

Just Eat shares are in the red after Peel Hunt downgraded the stock to sell from hold, and the company trimmed its price target to 520p, from 950p. The broker cited the possible tie up between Uber and Deliveroo as the reason for the downgrade, as they feel Just Eat would come under too much competition should the deal go ahead.

FirstGroup shares are a touch higher after it was reported that there have been calls to break up the company. There share price has been underperforming recently, and a couple of private equity firms expressed interest in the company, but nothing as materialised.

US

Stocks pushed higher today as the auto sector is in demand on the back of chatter that China is considering slashing its levy on cars. Ford, Fiat Chrysler, and General Motors are all higher today. Investors are in bargain hunting mode and the major losses endured last week seem like a distant memory. IBM’s acquisition of Red Hat for $34 billion indicates their desire to expand into cloud computing, and in turn compete against Alphabet, Microsoft and Amazon for business. It was the major tech stocks that were at the forefront of the recent sell-off, and it is a little concerning, that shares Facebook, Netflix, Amazon and Alphabet are either only registering small gains or are in the red.

The core PCE rate on an annual basis remain unchanged at 2%, meeting economists’ expectations. On a month-on-month basis personal income grew by 0.2%, while the consensus estimate was 0.3%. Personal consumption grew by 0.4%, meeting forecasts. They were solid reports and they add weight to the argument that the Federal Reserve should keep tightening monetary policy.   

FX

The announcement that Angela Merkel that intends to step down as leader of the CDU, and as Chancellor in 2021 has hit EUR/USD. The lack of a clear successor to run the CDU and take over as Chancellor has traders worried, as these dividend times in Europe requires strong leadership. The single currency has been losing ground versus the US dollar since late September, and if the bearish move continues it could target 1.1300.

GBP/USD edged up after Philip Hammond, the Chancellor of the Exchequer, issued a positive update regarding the state of the economy. The Office for Budget Responsibility upped the growth forecast, lowered the forecast for the deficit, and foresees stable wage growth over the next five years. Earlier in the day, UK consumer credit in September grew at its slowest pace in three years. The Bank of England cited poor car sales for the drop in demand for credit.

Commodities

Gold has been nudged lower by the firmer US dollar, and the risk on attitude by investors is also putting pressure on the metal. The commodity has been broadly moving higher since mid-August, and while it holds above the $1,214 mark the positive move might continue.

Oil is weaker as dealers are concerned the future demand levels. The slowdown in emerging market economies and the trade spat between the US and China is also a factor. Speculators have trimmed their bullish positions on oil for a fourth consecutive week, and they are now at the lowest level since July 2017.To stop receiving market commentary emails from David Madden, please reply to this email with ‘Unsubscribe’ in the subject line.

 

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