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Equity markets in Europe are firmly in the red as investors are worried about the state of the global economy. 

Europe

The disappointing industrial production and retail sales figures from China on Friday are still playing on investors’ minds. The UK retail sector took a knock today after well-known ASOS shares were battered on the back of an earnings warning.

ASOS shares have slumped after the online fashion house announced a profit warning. The group said that sales from September to November jumped by 14%, but there was a ‘significant deterioration’ in November. The company previously predicted full-year sales growth of 20-25%, and now it anticipates just 15%. Profit margins have been revised down to 2% from 4%. Nick Beighton, the CEO, warned that the sector is experiencing ‘unprecedented levels of discounting’. Online companies have a major cost advantage over high street retailers, and it is worrying when they are concerned about consumer spending.  

Huntingconfirmed a cautious outlook as the oil services provider warned that some oil companies are curtailing their budgets due to the recent slump in underlying oil market. On the bright side, the group said that existing customers are not walking away from contracts. The firm has a ‘cautious outlook’ for 2019, and while the oil market remains subdued, Hunting’s business is likely to remain gloomy. The stock has been in decline since August, and if the bearish move continues it might target the 450p region.

Boohoo had bad luck today as the online fashion retailer issued a very strong trading update, but unfortunately, the severe decline in ASOS shares weighed on the stock. Boohoo described their performance as ‘strong’ as it registered a record Black Friday in terms of sales. The dismal update from ASOS sent shockwaves throughout the wider sector.  The stock has been in decline since October, and if the bearish move continues it might target 140p.

Berkeley Group, Bovis Homes and Persimmon shares are all in the red today as UK average asking prices for homes dropped by 1.5% in the four weeks until December. On an annual basis, prices ticked up by 0.7%, while London prices are 1.1% lower, according to Rightmove.

US

Sentiment is sour on Wall Street as the Dow Jones and S&P 500 has fall to multi-month lows ,and both indices are in correction territory – have fallen more than 10% from their recent highs. Investors are worried about global growth, and the increased speculation about a possible US recession is adding to the weak sentiment.

The New York Fed Empire manufacturing reading dropped to 10.9 in December, from 23.3 in November. Economists were expecting a reading of 20. Today’s reading was the weakest since July 2017. There has been growing chatter of a recession brewing in the US, and even though some dealers think the fears are overdone, updates like this, add to those concerns.

The Federal Reserve will announce their interest rate decision on Wednesday, and the markets are pricing in a high probability of a 0.25% interest rate hike, but the press conference is likely to be the highlight of the event. In the past two months, expectations have been tempered a lot in relation to what to expect from the Federal Reserve in 2019. Any suggestions that rates are close to the neutral rate might push down the 10-year yield, and that might ramp up speculation about a recession.

FX

EUR/USD is higher despite disappointing eurozone inflation figures. On an annual basis, the headline CPI reading, dropped to 1.9% - a six month low. Given the sharp decline in oil prices, it isn’t a surprise that the cost of living has cooled. The CPI report which strips out, food and energy, dipped from 1.1% to 1%, and this underlines the weak demand. The dip in the US dollar is responsible for the elevated single currency.

GBP/USD has been given a lift by the relative weakness in the US dollar. According to Rightmove, average UK house prices dipped by 1.5% in the month until early December. This is additional evidence the UK housing market is cooling. Brexit is still in the mix, and until some clarity is provided one way or another, volatility is likely to remain low.

Commodities

Gold has edged up on the back of the softer US dollar. The inverse relationship between the US dollar and the gold market has been strong recently. The Fed meeting on Wednesday will be closely watched, and should it be a less hawkish update than in October, we could see a further rally in gold. The metal has been largely moving higher since mid-August, and if the upward move continues it might target the $1,265 region.

Oil prices are a little firmer today after Suhail al-Mazrouei, the energy minister for UAE stated that prices were correcting, and that he expects OPEC members and partners to fulfil their pledge to lower production. The oil market has been subdued since the major oil producers agreed a coordinated production cut earlier this month.

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