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Cautious end to February for Europe amidst Crimea concerns.
00:00, 28 February 2014
Europe The general tone in Europe today has been one of caution as the situation in the Ukraine and the Crimea continues to keep markets on edge, after Kiev accused Russia of clandestine military incursions, while the latest EU inflation numbers may well have prompted some weakness as well, given that the rebound in core prices makes any action from the ECB next week, much less likely. While we have had a solid performance in February so far, the uncertainty hasn’t prevented some buying interest in the afternoon session after the latest US economic data appears to have shown no negative effects from the recent cold weather around the Chicago area. That being said it would be surprising to see strong gains heading into the end of the month given what is going on in Ukraine right now. Today’s economic data in Europe has also been a reminder that despite the gains seen this month, problems still remain with Italian unemployment jumping sharply again in January to a record 12.9%, though German retail sales have encouragingly bounced back from their December slump, coming in at 2.5%, well above the 1% expected. Expectations of a possible rate cut from the ECB at next week’s rate meeting were dealt a blow by the latest CPI numbers which showed a jump in core prices in February to 1%. Stocks in focus today include FT owner and publishing house Pearson whose shares have dropped sharply today after a drop in profits of 6%, prompted by a slowdown in their US education business. Also on the slide, British Airways owner International Consolidated Airlines has fallen back, despite reporting a rise in profits to £770m. Sometimes changes in senior management are well received by markets and sometimes they are not. In the case of Aggreko it is the latter as CEO Rupert Soames announced he would be standing down on April 24th after 11 years in the top job, and joining outsourcing company Serco. On the upside the best performers have been bookmaker William Hill, despite announcing a fall in pre-tax profits on the back of continued investment in its on line offering for tablets and smart devices. Shares in this sector have taken a bit of a pummelling in recent times on the back of recent publicity about possible government intervention to curb the use of in store gambling slot machines. Skandia owner Old Mutual is also having a positive day after announcing a strong set of numbers for 2013, while Vodafone continues to rise ahead of the disbursement of the proceeds of its Verizon sale next week. The basic resource sector is also struggling today ahead of tomorrow’s official Chinese manufacturing PMI data, which is expected to mirror some of the weakness in the HSBC numbers earlier this week, with a fall to 50.1. US US markets opened unchanged and continued their moves higher after last night’s record finish on the S&P500. Despite the fact that US Q4 GDP was adjusted down from 3.2% to 2.4%, with a large part of the fall down to a sharp fall in personal consumption from 3.3% to 2.6%, the S&P500 has continued to push higher, above 1,860 as analysts continue to revise up their expectations for the index with each passing day. In some senses the rise of the S&P500 is the gift that keeps on giving, going up and good and bad data, in a clear goldilocks scenario, which at some point will inevitably end in tears, but trying to pick the top is never a wise thing to do and always fraught with difficulties. The latest Chicago PMI data for February appears not to have been unaffected by the unseasonably cold weather coming in well above expectations of 56.5 and also above the January number of 59.6 at 59.8. February consumer confidence on the University of Michigan survey continues to show resilience despite the tepid nature of recent consumption data, coming in at 81.6, above expectations of 81.2. There had been some optimism that this week’s better than expected new home sales data would be a precursor to a strong pending home sales number. This optimism proved somewhat premature with a rise of 0.1%, well below expectations of a 1.8% rise. In company news Citigroup has adjusted its Q4 earnings numbers down for 2013, by $235m after discovering fraud at its Mexican subsidiary Banamex. The retail theme continues today with Gap announcing a disappointing set of numbers, as profits fell to $307m, and sales also came in lower. FX A surprise jump in Eurozone core price inflation in February to 1% gave the euro a sharp boost today, pushing it above 1.3800 for the first time since December last year, on speculation that it would make it much less likely that we will see any action from the ECB at next week’s rate meeting. This would seem a reasonable assumption given recent comments from ECB policymakers that they see no risk of deflation in the euro area. To take action now when CPI prices appear to be edging back up would suggest that ECB policymakers don’t believe their own recent rhetoric with respect to price inflation. The Swedish krona has jumped sharply today after the latest Q4 GDP numbers showed a sharp rise in economic activity by 1.7%, well above the 0.6% expected, driven largely by household consumption, and a rise in inventories. The US dollar continued to come under pressure and looks set to close this week at its lowest levels this year as the latest US Q4 GDP revision showed that the US economy grew less than initially expected coming in at 2.4%. Commodities Copper has rebounded off two week lows on some short covering ahead of tomorrow’s Chinese manufacturing PMI data for February. After four successive days of losses, and a 20% drop from this week’s peaks natural gas prices have rebounded from two week lows. Coffee prices have also continued to push higher, hitting eleven month highs as fears about supply continue to underpin prices as the drought in Brazil goes on. Crude oil prices have been pulled in both directions slipping back initially after US GDP missed expectations, but pulling off their intraday lows when Chicago PMI data beat expectations. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.