market relief

European stock markets are mixed as investors remain nervous about the geopolitical situation. 

Europe

Uncertainty surrounding Brexit, US-China trade relations, and the Italian budget are acting as a ceiling to equity markets. 

Restaurant Group shares have sold-off heavily after shareholders approved the £550 million acquisition of Wagamama. Approximately, 40% of the shareholders voted against the move, and there is a feeling the company paid too for the food chain. The takeover will include a £357 million cash payment, which will be largely funded by a rights issue, and the dividend will be trimmed. The move comes amid a cautious consumer environment as companies like Jamie’s Kitchen and Prezzo have endured difficult trading. Restaurant Group plans to trim costs and close underperforming stores, as well as expand into the US, as a way of recouping the Wagamama investment cost. The stock has dropped to its lowest level in over eight years, and if the bearish move continues it might target 176p.    

De La Rue shares are in demand as there is chatter the poor share price performance could leave the firm vulnerable to a takeover. Yesterday, the company announced a 36% fall in operating profit. Earlier this year it was announced that they didn’t get the contract to produce post-Brexit passports – it was a big blow to the company. The share price has been in decline for over one year, and if the negative trend continues, the stock might target 400p.    

UK banks will be in focus as the Bank of England stress test results will be announced after the closing bell of the London session. Traders will be interested to find out how British bank would cope in the various different Brexit scenarios. UK banks have beefed up their balance sheets since the credit crisis, and now they could face additional tough times, depending on the terms of the UK’s exit of the EU. 

US

Stock markets are a little higher as traders cling on the optimistic comments from Larry Kudlow yesterday in relation to trade with China. Some dealers are in wait-and-see mode as we will hear from Fed chief, Jerome Powell later today. 

Last month, the central banker said the US was a long way from the neutral rate, and traders took that as a sign that more rate hikes are in the pipeline. Recently, Richard Clarida, the deputy chairman of the Fed, contradicted Mr Powell, and said the US economy is near the neutral rate. The markets are pricing in a high probability of a rate hike, but looking into 2019, dealers are divided over how many rate hikes the Fed will announce. President Trump said he is ‘not even a little bit happy’ with his appointment of Jerome Powell as Fed chair, but the criticism is unlikely to influence the central banker.  

The second estimate of the third-quarter GDP reading remained unchanged at 3.5%. Consumer spending in the third-quarter was revised to 3.6% from 4%. 

Dick’s Sporting Goods shares are in demand after the company posted an 11% rise in earnings per share to 39 cents, which smashed the 26 cents per share estimate that traders were predicting. The retailer upped its guidance too.

FX

GBP/USD has bounced back today following yesterday’s major decline. Bargain hunting and short covering propped up the pound as the political outlook is still poor. It would appear that Theresa May will find it very difficult to get her deal approved in parliament. The Treasury have announced that any form of Brexit will make the economy worse off compared with staying in the EU, but then again the Treasury don’t exactly have a great track record when it comes to making forecasts.

EUR/USD is a little lower today on account of the firmer US dollar. German GfK consumer sentiment slipped to 10.4, down from 10.6 in the previous month. The size of the move isn’t significant, but it is yet another disappointing economic indicator from Germany.

Commodities

Gold has edged lower again as the US dollar has hurt the metal. The commodity has struggled to find direction in recent weeks and it mostly experiences low volatility. Even though the metal has been broadly moving lower for the past month, if it holds above the $1,200 mark, its outlook might remain positive.

Oil fell further into the red when the latest Energy Information Administration report showed that US oil stockpiles jumped by 3.57 million barrels, while the forecast was for an increase of only 769,000 barrels. This added to the concerns about oversupply that has dogged the energy market.

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