Having seen European markets eke out incremental gains on an almost daily basis since the beginning of the month, it shouldn’t have been too much of a surprise to see a little bit of a pullback at some point.
We certainly don’t have to look too far for the catalyst for today’s weakness, having got a weak hand off from markets in Asia, which came under pressure in the wake of some really disappointing data out of China.
We got some indication of a slowdown in the recent China trade numbers last week, however the extent of the slowdown in the latest industrial production and retail sales in July has prompted some significant weakness in the likes of companies tied to the economic cycle in Asia, and China especially, with the FTSE100 getting hit particularly hard.
BHP is lower despite saying it is looking at options to spin off its petroleum business, with one option being a potential merger with Woodside Petroleum, with discussions currently ongoing.
Weakness in oil prices is also seeing declines in the likes of BP and Royal Dutch Shell, while the likes of everything else is being caught up in the spillover with travel and leisure stocks also falling back, led by easyJet and TUI. Financials are also under pressure due to weaker bond yields.
Meggitt this morning published the details of the recent £6.3bn offer for the business by Parker Hannifin, which it is currently recommending shareholders accept. The details include undertakings by Parker to safeguard UK national security in respect of the various defence contracts with the UK government. There is potentially another bid in the offing with the recent counter offer from TransDigm, however in the absence of a firm bid shareholders look set to vote on the deal next month on September 21st.
In more M&A activity Ultra Electronics has agreed a deal with Cobham that values the business at £2.6bn. Cobham has also agreed legally binding proposals with Ultra in respect of its defence commitments to the UK government, and more specifically its contracts with the Royal Navy.
US markets opened lower, taking the lead from the weakness in Asia and European markets, and a sharp drop in the latest Empire Manufacturing index for August, which fell from a record high of 43 in July to 18.3 in August missing expectations of 28.5.
We’ve seen broad based weakness across sectors with the Russell 2000, and Nasdaq leading US stocks sharply lower. Coming on the back of a weak Michigan consumer confidence reading on Friday, market expectations about the second half of 2021 appear to be becoming more pessimistic.
The big vaccine stocks are also getting clobbered again with BioNTech down another 10% and Moderna also down heavily as questions start to get raised about their wider valuations.
The US dollar has held up fairly well, although it has lost ground against the Japanese yen and Swiss franc, due to the declines being seen across equity markets.
Talk that some Fed officials are looking at ending asset purchases by the middle of next year are also helping to support the greenback. The biggest fallers have been the commodity currencies with the Australian and Canadian dollar under the most pressure.
Crude oil prices are under pressure after today’s disappointing economic data out of China. Expectations were already low leading into the numbers, and combined with the warning from the IEA that demand for crude oil was slowing, prices have slipped sharply, with Brent prices slipping back below $70 a barrel, and on course for its third successive daily decline. At current levels Brent prices look to be on course for their lowest daily close since the end of May.
Disappointing economic data out of China and a lacklustre US Empire manufacturing survey for August, has seen US 10-year yields slip back further after their sharp fall on Friday, helping to push gold prices to their highest levels in six days, on concerns over a weaker growth outlook as we head into the autumn.
Bitcoin has continued to move higher, hitting its highest levels in three months, along with Ethereum prices.
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