Election concerns have washed across from the Atlantic, sending European shares lower on Wednesday. In contrast to the sell-off in equities, investors were seeking the safety of government debt, sending bond yields lower.
Across the space for benchmark 10 year bonds, gilt yields have fallen the most, dropping 8 bps to a four-day low. Suddenly, next to a USA led by Donald Trump and an infighting Europe, in the near term, bonds from Brexit Britain look relatively safe. Talk that Philip Chancellor Hammond will take a “flexible fiscal framework” rather than a both-feet-first fiscal stimulus should help stave off any imminent ratings downgrade to UK debt.
A broad risk-off mood that started in the US overnight and followed through to Asia has taken the FTSE 100 down by over half-a-point, a similar decline to other European indices.
The price of gold back within a whisker of $1300 per oz and near a one-month high has put gold-miners Fresnillo and Polymetal near the top of the UK equity benchmark. Gold is being accumulated as a hedge against equity market declines before the US election. The uncertainty of a Donald Trump election victory could easily derail the chances of a US interest rate hike in December. The likely drop in the US dollar as rate hike expectations fade would benefit gold.
Shares of Next rose 2%, pulling other clothing retailers including M&S and Primark-owner ABF higher after a well-received update. The move higher in the share price, despite falling sales, comes from relief that Next has kept its full-year profit forecast as sales turned a corner in October.
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Another solid set of numbers from Persimmon, despite signs of the housing market losing momentum and Brexit fears, has benefitted other homebuilder shares.
Banks are faring less-well with Standard Chartered shares down over 3% on the FTSE 100, adding to the decline after weak earnings. On the continent, Italy’s Monte dei Paschi dropped limit down over 6%. Falling yields, which hurt bank profit margins, and another desperate attempt at asset sales from Italy’s biggest lender UniCredit are hurting demand for bank stocks.
Stocks in the US look set for a lower open with the Dow Jones Industrial Average to fall below 18,000 in another challenge to the price floor that has been in place since early September.
If the share price of Apple is any guide, US equity benchmarks could be headed a lot lower. A 2% drop in Apple shares on Tuesday took the tech giant briefly into correction territory as it fell over 10% from its 52-week high.
The normal tension before a Federal Reserve meeting is there but this time it is because of the Presidential election rather than any chance of a change in policy or language from the Fed. Janet Yellen may as well have cancelled the meeting this week, because there is almost no chance that the committee will risk rocking the boat less than a week before the election.
USA pre-opening levels
S&P 500: 7 points lower at 2,104
Dow Jones: 65 points lower at 17,972
Nasdaq 100: 15 points lower at 4,751
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