It is mixed bag in Europe today as the European Central Bank (ECB) chief, Mario Draghi didn’t deliver the dovish update that many dealers were expecting. 

Europe

Interest rates were left unchanged, meeting forecasts. The 2019 GDP and CPI forecasts were upped, but his predictions for growth and inflation for 2020 were lowered. The central banker cautioned that the risks in the euro-area were tiled to the downside, but claimed rates will remain on hold until the first-half of 2020, while previously, rates we predicted to hold steady until the end of 2019. It seems strange that Mr Draghi is holding such a neutral line, while the Fed are open to the possibility of lowering rates. 

The ECB chief announced the details of the new targeted lending scheme that will kick off in September too. The central bank aims to boost lending in the currency bloc, and the long-term loans to finance houses will have an interest rate range of between 0.1% and -0.3%, depending if the bank hits its lending target. Cheap and easy access to cash is all well and good, but some investors are wondering if there will be much appetite for new loans, seeing as personal and corporate debt levels are already high. CPI in the region has declined, and that suggests that demand is falling, and it begs the question, will individuals and companies load up on even more debt. 

The FTSE 100 is holding up well thanks to firmer consumer and health care stocks. The DAX and the CAC 40 were pushed into the red as Mr Draghi took an ever so slightly hawkish line, and it was a far cry from the dovish message that many dealers were anticipating.

The proposed tie-up between Renault and Fiat Chrysler is off, and there was chatter than it was the meddling of the French government that prompted Fait Chrysler to walk away from the deal. The French government previously backed the merger, but they wanted to protect French jobs and manufacturing sites. It was reported that the administration in Paris – who is a 15% shareholder in Renault, is still open to the possibility of the merger, although Fiat Chrysler might feel differently. The rise in popularity of electric cars, and decline in demand for diesel vehicles has put pressure on the sector as a whole, so consolidation is likely to happen in order to stay competitive.  

The German government are considering the possibility of a merger between Commerzbank, and the Dutch bank ING. This comes after the Deutsche Bank and Commerzbank merger talks were called off, but seeing as the German government holds a 15% stake in Commerzbank, they are keen to bolster the balance sheet of the firm. Commerzbank has endured restructuring in recent years, and it plans to continue trimming costs. ING has had its own restructuring in the wake of the credit crisis, and there is speculation about a property bubble in Amsterdam. The two banks have their own issues, and a merger is unlikely to solve their problems.

Go-Ahead are ticking along nicely as the like-for-like revenue for London and international buses grew by approximately by 0.5%. More importantly, the full-year outlook for the London and international departments was raised. Overseas expansion is going well, as the Norwegian rail routes will be operational in December, and the German division is making preparation for its third contract.

US

Equity markets are subdued as trade tensions still linger. The Trump administration threatened China with further tariffs on ‘at least’ $300 billion worth of goods. President Trump claimed that China and Mexico are keen to strike a trade deal, but Beijing is taking the stance that they don’t want a trade war, but they won’t shy away from one. 

The jobless claims report came in at 218,000, while economists were expecting 215,000. Given that the job market is robust, there was a muted reaction to the update. Traders will be looking ahead to the non-farm payrolls report tomorrow. The jobs report will be of particular importance in light of the comments from Fed members which suggested they would consider cutting rates if needed.

The J.M. Smucker Company revealed a 7.7% annual rise in EPS to $2.08, which topped the forecast of $1.97. On a year-on-year basis, revenue ticked up by 6.7% to $1.90 billion, which slightly undershot the analysts’ forecasts. The group cited lowering pricing as the reason for softer revenue streams of certain products. Online sales nearly accounts for nearly 4% of total sales, and the group hopes it will make up 5% next year. The e-commerce stream isn’t huge but at least it is heading in the right direction.

Signet Jewellers registered a quarterly EPS of 8 cents, which was much better than the loss of 23 cents per shares that equity analysts were expecting. Same store sales edged lower by 1.3%. The company’s lowering of the guidance hurt investor confidence. It now expects full-year EPS to be between $2.88 and $3.17, and the previous guidance was for between $2.87 and $3.45.

FX

EUR/USD rallied in the wake of the Draghi update, and it seems that traders were overly bearish on the single currency in recent weeks, and now we are seeing a snap back. If the ECB holds their line, we might have seen a near-term floor on the euro versus the US dollar.

GBP/USD was given a boost on the back of the broad sell-off in the US dollar – which was euro driven. Tomorrow Theresa May is stepping down as the Conservative leader, and the Troy Party leadership race will be ramped up. In the coming weeks, sterling’s volatility will probably be derived from who is looking likely to take the top job, and more importantly, their stance on Brexit. 

Commodities

Gold has rallied again as the inverse relationship with the US dollar continues to be strong. The metal is taking full advantage of the sell-off in the greenback. To a lesser extent, the light to quality strategy by some traders is pushing up gold too. Gold’s rally in the past two weeks has been very impressive, but we might see a breather in the near-term.

WTI and Brent crude saw low volatility today in the wake of the major declines endured yesterday. There was some short covering and bargain hunting going on, but the big picture remains the same, as trade tensions persist, and US stockpiles are high, the demand outlook looks weak.  

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