Stock markets had a volatile session and are set to finish in the red. 

Europe

Traders are nervous about the relatively high bond yields in the US, the potential fiscal fight between Brussels and Rome, and poor global trading relations. Some economists have been warning about a possible economic slowdown, and the lowering of the global growth forecast by the IMF has got dealers worried.

WM Smith shares have sold-off sharply after the company posted 4.28% drop in full-year pre-tax profits to £134 million. The dip in profit was blamed on restructuring costs, and a tough trading environment. The company raised the full-year dividend by 13%, and announced a £50 million share buyback scheme. It seems odd to be returning funds to shareholders at a time when the firm is undergoing a transformation, and the retail sector is poor. The firm will close the Cardmarket business and the WH Smith Local division. The shops in transport hubs continue to performer well as they saw a 7% rise in profit, but company will need to work on its image as it was labelled the ‘worst high street retailer’ earlier this year. The stock gapped lower this morning, and while it remains below the 200-day moving average at 2,024p, its outlook could remain negative.

The Royal Institution of Chartered Surveyors (RICS) said the residential property market is ‘struggling for momentum’. Economic uncertainty, high prices and a lack of stock were cited for the underwhelming outlook. The stock of properties for sale and for let on estate agents’ books, is near record lows, and this highlights the negative sentiment. Stocks like Barratt Developments, Berkley Group and Redrow are in the red.

Dunelm shares are higher after the company revealed strong first-quarter online sales. The firm had difficulties shifting focus from stores to the online shop, and now we are seeing signs that the process is working. Like-for-like (LFL) first-quarter online sales jumped by 33.3%, while group LFL sales only increased by 1.3%. The group warned that customers are holding off on ‘big ticket’ items like furniture, so the climate for the next few months could be subdued.

US

Equity index futures were pointing to a major sell-off earlier in the day, but the open in New York wasn’t that bad, and now the major US indices have plunged. The fear factor has evaporated a little, but the issues that triggered the sell-off are still relevant. It looks like we could be in for another difficult day on Wall Street, but the acid test will be if the benchmarks close below yesterday’s levels.

Inflation in September came in at 2.3%, down from 2.7% in August, and economists were expecting 2.4%. The core rate held steady at 2.2%, while the consensus estimate was 2.3%. The inflation reports tempered bond trader’s nerves, and US yields dipped, as this took the edge off the sell-off in stocks. Investors are now a little less fearful about US interest rates rising in light of the CPI data.

FX

The US dollar index sold-off today as traders took their profit on the greenback. The currency began a rally in late September, and the upward trend in still intact. President Trump is angry with the Federal Reserve for hiking interest rates, and pushing up the dollar. Mr Trump can attack the central bank all he wants, but ultimately the Fed is independent of the government, and if the US economy continues to be strong, the Fed will likely keep hiking rates.  

EUR/USD is higher on the session due to the weaker US dollar. It was a quiet day in terms of economic announcements from the currency bloc, and the mover higher in the euro was dollar driven. The political situation in Italy is hanging over the single currency, so moves to the upside might be limited. The German government trimmed their outlook for this year to 1.8% growth, from 2.3%, and dealers are mindful of this.

GBP/USD was also given a lift by the dip in the dollar. Politics is in play in the UK, and the DUP have warned Theresa May again that they will withdraw their support for her if she cuts a deal with Brussels that is not satisfactory to them. The pound has been pushing higher since mid-August, and if it holds above the 1.3000 mark, its outlook could remain positive.  

Commodities

Gold has been helped by the negative move in the US dollar. The metal still finds it difficult to move much beyond the $1,200 mark, and while it remains below the $1,225 region, its outlook could remain weak.

Oil saw a jump in volatility after the Energy Information Administration revealed a build in US oil and gasoline stockpiles. Oil inventories jumped by 5.98 million barrels, while the consensus estimate was for a build of 2.62 million barrels. Gasoline stockpiles rose by 951,000 barrels, while traders were expecting a drop of 42,000 barrels. Traders were half expecting a jump in stockpiles in light of the big build in the American Petroleum Institute report last night. 

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