Equity benchmarks are firmly in the red this afternoon as confidence dwindles in Theresa May’s government. 

Europe

The departure of a number of cabinet members, especially Dominic Raab, Brexit secretary, has cast serous questions over May’s ability to get the withdrawal draft approved. Investors are scrambling to get out of banking and house building stocks. The political uncertainty is so great, dealers are cutting their exposure to the British economy, and stocks like, Lloyds, RBS, Persimmon and Barratt Development are bearing the brunt of the decline.

British American Tobacco and Imperial Brands sold-off after the Food and Drug Administration (FDA) will restrict sales of the majority of flavoured e-cigarettes to age-restricted stores in a bid to deter minors from taking up the habit. The FDA will also try and ban the sale of menthol and flavoured cigarettes.

Tullow Oil conformed that the net debt position will drop to $2.8 billion, and the group anticipates full-year free cash flow to be $700 million. The firm has lowered its investment budget to $430 million, down from $460 million, and that has helped with the cash flow estimate. Tullow Oil also narrowed their production guidance to between 89,300 and 93,300 barrels of oil equivalent per day (boepd), while the old forecast was between 89,000 and 95,000 boepd. Seeing as the oil market has sold-off recently, a reduction in capital expenditure could be beneficial to the firm.

Royal Mail said that pre-tax profits dropped by 57% in the first-half, and the underlying revenue increased by 1%. Poor productivity and a failure to impose the planned cost saving scheme contributed to the fall in earnings. GLS, the overseas business saw costs increase, and the number of letters sent at home decreased. The company warned on profits in October, which triggered a severe sell-off in the share price, and today’s update weighed on the stock too.

Aston Martin shares are lower despite revealing a solid set of third-quarter numbers. The high-end car maker registered an 81% rise in revenue, and a 48% rise in adjusted earnings. Car production doubled, and now that group foresees that annual production will come in at the top end of estimates. The company is in the process of opening a new plant in Wales, and this will boost capacity.

US

Stocks are in the red as traders remained concerned about the prospect of higher interest rates, and the state of politics in Europe is weighing on sentiment too. China have outlined possible concessions in relation to trade, but tensions between the two sides remains strained.

Walmart revealed mixed results, as earnings per shares, and same store sales topped forecasts, while revenue missed traders’ estimates. Online sales jumped by 43%, and this is encouraging to see the wider sector is moving more towards e-commerce. It was reported the legendary investor, Warren Buffet wound up his position in the retailer, and this had soured sentiment too. 

Retail sales in October jumped by 0.8%, easily topping the forecast of 0.5%. The report which strips out auto and gas sales only increased by 0.3%, which undershot the forecast of 0.4%. The latter update took some of the shine off the headline figure. The jobless claims number ticked up to 216,000, from 214,000 – but the labour market is still extremely robust.

FX

The US dollar index is higher as continued political uncertainty in Europe has prompted traders to seek safe-haven currencies. The solid retail sales from the US added to the currencies upward move too. Earlier this week, the US dollar index hit a 17 month high, and it we might look to retest the level. 

GBP/USD has endured a major sell-off in the wake of a number of resignations from the UK cabinet, most notably, the Brexit secretary, Dominic Raab. Confidence in Theresa May is crumbling, and that is being reflected in the pound. Sterling has been losing ground since September, and if the bearish move continues it could target 1.2661.

EUR/USD is also lower on account of continued uncertainty surrounding Italy, and the firmer US dollar is adding to the single currencies woes. Rome and Brussels are still in a standoff over Italy’s budget, and it is the EU’s turn to move next.

Commodities

Gold has crept higher today despite the rally in the US dollar. Lately there has been a strong inverse relationship between the US dollar and the metal, and seeing as gold has risen to today ,it makes the upward move all the more impressive. The uncertainty in global equity markets are driven to traders into risk-off mode, and that is helping gold.

Oil saw a spike in volatility in the wake of the Energy Information Administration figures. US oil stockpiles jumped by 10.2 million barrels. The oil market initially sold-off, but then rallied. The American Petroleum Institute report yesterday showed a huge build in stockpiles so today’s number wasn’t a surprise.


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