Optimism in equity markets, gold rebounds, GameStop drops

CMC Markets

Stocks are in positive territory heading into the close as a mixture of optimism in relation to the US-China trade situation, and high hopes for tomorrow’s European Central Bank (ECB) meeting have boosted sentiment. 


China said it will not impose additional tariffs on 16 US products, and this conciliatory move should help the trading relationship between Washington DC and Beijing.  Tomorrow, the ECB will hold their much awaited meeting, and the chatter about an interest rate cut, and possibly the announcement of a bond buying scheme too has encouraged the buying of equities. 

London Stock Exchange shares jumped on the back of the £29.6 billon approach from Hong Kong Exchanges and Clearing Limited (HKEX). The offer is to ‘combine the two companies’. The Hong Kong group made the announcement about a possible offer, and it has proposed 2,045p per LSE share as well as 2.495 shares in the group. In 2012, HKEX acquired the London Metal Exchange, and today news is a further attempt by the company to turn itself into a global company. The regulator might step in should a formal offer for LSE be made, as they have done so in the past. Shareholders in the LSE might not be thrilled by the prospect of receiving Hong Kong listed shares as a part of the package, in light of the recent unrest in the district.

Zara’s owner, Inditex, continue to perform well despite the downbeat consumer climate. The group announced a 7% increase in revenue to €12.82 billion – in line with the consensus estimate. The firm reiterated its full-year sale growth target of 4-6%. Like many in its industry, the group has had to adapt to the changing environment, which included closing smaller stores, and pushing online sales. The group is going to roll out online sale for a number of different markets in the near-term. Yesterday the stock hit its highest level since July, and it is in the red today despite the positive update due to profit taking.              


The mood on Wall Street is slightly positive as Beijing’s decision to exclude some US goods form extra levies has helped the mood. The US-China trade dispute has dominated the markets in recent months, but the decision by Beijing has gone a little way to foster better trading relations. 

PPI edged up from 1.7% to 1.8%, and the core reading jumped by 0.2% to 2.3%. The core update is considered to be a better gauge of underlying demand, and the increase suggests that that demand is rising, and that bodes well for the US economy. PPI can be an indicator that CPI is going to edge up as rising prices at factory levels could point to higher consumer prices down the line.  

GameStop shares are in the red today after the company posted disappointing figures The quarterly loss per share was 32 cents, while traders were expecting a loss of 21 cents. Revenue was $1.29 billion, which undershot the $1.34 billion forecast. To add to the negative news, the firm lowered its forecast too. GameStop now expects same-store sales to incur a percentage decline in the low teens, while the previous forecast was for a drop of between 5% and 10%. The company is a victim of the consumer climate, as online retailers are eating into its business.


The US dollar index was given a boost by the solid US PPI numbers, and the greenback has hit a one-week high on the back of the news. It has been a quiet day in Europe in terms of economic announcements, and GBP/USD and EUR/USD have been at the mercy of the US dollar. Tomorrow, the ECB are tipped to loosen their monetary policy, and should that be the case we might see renewed selling pressure on the euro.        


Gold has rebounded after four days of losses. Lately the metal has hit by the firmer US dollar, but today it managed to drive higher despite the rally in the greenback. Should the metal hold above the $1,480 mark, the wider upward trend should continue.

Oil saw a spike in volatility on the back of the Energy Information Administration report, which showed a larger-than-expected draw in US oil inventories. Stockpiles fell by 6.91 million barrels while traders were expecting as drop of 2.68 million barrels. The energy edged lower despite the fall in stockpiles.


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