European stock markets have had a so-so session even though it has been an interesting week for news. 

Europe

Metals have had a rough ride this week, as dealers feel the trade dispute between the US and China will have a greater negative impact on the Chinese economy. China’s economy has been growing at a more moderate rate in recent years and its appetite for minerals has been waning. Platinum fell to a multi-year low this week, while copper and palladium reached levels not seen since last summer. There has been a small bounce back in metal prices today, and that has helped BHP Billiton, Anglo American and Rio Tinto. 

The Italian market was given a boost after it was reported that President Trump offered to buy Italian government bonds. The European Central Bank’s bond buying scheme has worked well in keeping the borrowing costs down for governments like Italy, but the scheme is expected to be wound down in December. The offer from Mr Trump could bring about some stability to the Italian debt market, which would likely boost confidence in the country.

Ryanair are back in the news again, and this times is for the wrong reasons. Only yesterday, the airline announced it reached a deal with its Irish pilots to end the strikes. This morning, the company confirmed that from its plans to charge non-priority customers £10 to take a second bag onto the plane. The airline claims the move will greatly reduce flight delays, and it doesn’t expect to make any money from move. Over the past year the airline’s reputation has been hit by flight cancellations and industrial action, and this new baggage issue is likely to weigh on the share price.  

Computacenter had a strong start to the year as first-half revenue and pre-tax profit jumped by 18.1% and 24.3% respectively. The company raised its full-year outlook in July, and today it confirmed is on track to achieve that target. The frim lifted its interim dividend by 17.6%, and this was another sign that the company is confident in its outlook. The stock has been rallying for over a year, and if the bullish move continues it could retest the 1,640p region.

Sainsbury’s shares are in the red as the Competition and Markets Authority (CMA) is looking into the company’s proposed merger with Asda. Should the deal go-ahead it would make the group the largest food retailer in the UK. The CMA began its inquiry into the deal yesterday, and they are trying to ascertain if the proposed move would bring about ‘less choice, and therefore higher prices or worse services’. Given the rise of Aldi and Lidl, and the general shake-up of the UK food retailer sector, consolidation is inevitable, but investors might be cautious until the CMA publish their findings. The share price of Sainsbury’s has been pushing higher since April – when the proposed deal was announced , and while it holds about the 320p level, its outlook might remain positive.

US

Stocks are higher today after Jerome Powell, the head of the Federal Reserve, issued an upbeat outlook on the US economy. Mr Powell said there is ‘good reason to expect strong’ economic growth to continue, and interest rate hikes are ‘likely’ if the economy continues to perform well. The US central banker pointed out that inflation is frim, but they are not worried about the economy overheating. This was a nice middle of the road update from Mr Powell.

Sales of durable goods fell by 1.7% in July, which was far worse than the 0.5% decline that economists were expecting. The June report was revised lower to 0.7% growth from 0.8%. It is disappointing to see a fall in sales given the Fed is expected to hike rates next month.

FX

EUR/USD has been pushed higher by the slip in the US dollar. The greenback was weaker this morning, and then it sold after Jerome Powell’s update was released. Traders were expecting a slightly more hawkish announcement, and the neutral tone pushed the US dollar lower. Germany posted solid growth figures, as the economy grew by 0.5% in the second-quarter – meeting forecasts.

GBP/USD has been helped by the sell-off in the greenback. The talk of a ‘no-deal Brexit’ is still a factor for the pound, but today’s move has been dollar driven. Sterling remains in the downward-trend that began in April, but if today’s upward move is extended it could encounter resistance at 1.2957.

Commodities

Gold has rallied on the back of the slide in the US dollar. Recently the metal has had a strong inverse relationship between with the US dollar, and today gold hit its highest level in over a week. If gold’s bullish move continues it could target $1,204. 

The oil market is still driving higher on account of the fall in the US inventory data during the week. The American Petroleum Institute and the Energy information Administration reports showed large declines in US oil inventories during the week, and this is playing on traders’ minds. Brent crude hit its highest level in over a month, while WTI hit a two-week high. US sanctions on Iran are also playing into the mix as output from the country has fallen.

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