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Markets have given up some ground as we approach the close of the session. 

Europe

Uncertainty in relation to Brexit, and the Italian budget deficit are weighing on sentiment. There hasn’t been any major developments in relation to Brexit, but the situation is still tense. Italy’s economy minister, Giovanni Tria, said they have no plans to change the budget, and he pointed out that France has been given room to manoeuvre in the past.

Renault shares has sold-off severely today after Carlos Ghosn, the CEO, and the Chairman of Nissan, was asserted on suspicion of violating financial trading rules. There is talk he wasn’t upfront about his true earnings, and that he was using company assets for his own personal use. Investors have lost a lot of confidence in the company, as his behaviour raises questions about the firm’s governance. The share price has been in decline since April, and if the bearish move continues it could target €50.00.

Diploma reported solid full-year figures as pre-tax profit and revenue jumped by 9% and 7% respectively. The total dividend was upped by 11%. The group is a little anxious regarding Brexit, but it has already started building up inventory just in case there are any complications – which shows they are planning ahead. Despite, the uncertainty, the group is still confident it can achieve its medium-terms goals. The share price has been in an upward trend for three years, and if the positive run continues it might target 1,500p.

There was a story over the weekend that Babcock will write down £100 million in relation to Avinci Helicopter – a firm it bought four years ago.Investors will be keeping an eye on the company as it is due to announce it first-half figures on Wednesday. Lately the firm has been selling off ‘low-margin businesses’ so we might see additional restructuring. The share price has been in decline since June, and if the negative move continues it might target 500p. 

US

Equity markets are lower and the tech sector is feeling the pain again. Investors are afraid that we are either near peak iPhone, or have already passed it .Chip makers, which supply the smartphone industry sector are coming under pressure too. The Chinese authorities are looking into alleged ‘evidence’ of antitrust violations by Micron Technology, Samsung and SK Hynix, and this is also weighing on the industry too.

There was more negative news from the housing market today as the NAHB housing market index dropped to 60 – its lowest reading in over two years. The US housing market enjoyed a great run since the economy bounced back from the credit crisis, but prices have been overstretched, and the higher interest rate environment hasn’t helped either. 

FX

The US dollar index has lost ground today as traders are less fearful about the prospect of the Federal Reserve pursuing an aggressive monetary tightening policy. At the back end of last week, we heard the Richard Clarida of the Fed. The policy maker said the central bank is getting close to the ‘neutral rate’ and this has taken some of the heat off the greenback.

EUR/USD has been helped by the dip in the US dollar. The Italian situation is far from over, and the single currency may find it difficult to attract buyers while Rome and Brussels are at loggerheads over the Italian budget. Given that Italy has the third-largest government bond market in the world, it has the potential to put enormous pressure on the currency.

GBP/USD is higher thanks to the drop in the US dollar, but uncertainty surrounding Brexit still hangs over the pound. There has been continuous chatter about whether Theresa May can get the draft agreement passed in Parliament, and there also been talk whether the Prime Minister can hang on to her position.

Commodities

Gold is largely unchanged on the day even though the US dollar is weaker. In recent months, the commodity has benefitted from declines in the US dollar, and it is a little worrying that it can’t move higher today. The metal has also failed to benefit from the uncertainty in world stock markets, which is also a negative sign.

Oil has sold-off heavily again after Russia failed to commit to cutting production in order to stabilise the price. The energy market clawed back some ground towards the end of last week when there was talk that OPEC and partners would cut supply by 1.4 million barrels per day, and now it appears that Russia may not play ball.

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