September has picked up where August left off with another day of red for European markets, which were already under pressure after a weak Asia session.
Asia markets were already on the back foot after another weak PMI number from China; however, it was the announcement that Chinese authorities had put 21m people in Chengdu into lockdown, that really saw the wheels come off. With covid outbreaks unlikely to diminish as we head into winter, the prospects for a China rebound this side of next year have virtually disappeared, raising concerns over a prolonged global slowdown.
Today’s losses have been broad-based, as recession fears grow, against a backdrop of central banks who are determined to raise rates at the expense of growth. with little in the way to cheer apart from the utilities sector with Centrica and SSE eking out minor gains.
The DAX has slipped back to its lowest levels since mid-July, with the biggest fallers being the likes of Airbus and Daimler.
Glencore is one of the biggest fallers on the FTSE100, although most of that is down to the company going ex-dividend, on an interim and special dividend basis. The same weakness applies to the Admiral share price, which has also gone ex-dividend.
Rolls-Royce is the worst performer despite signing a new joint venture deal with Air China for a new (MRO) maintenance, repair and overhaul facility in Beijing, which is due to open in 2026.
The announcement that Reckitt Benckiser CEO Laxman Narasimham is stepping down at the end of this month has seen the shares fall sharply. In the short term senior independent director Nicandro Durante will take over until a suitable replacement is found.
US markets opened sharply lower after weekly jobless claims came in better than expected at 232k, helping to feed into the negative feedback loop we’ve been in since Friday, and Fed chairman Powell’s speech at Jackson Hole.
The continued resilience in US economic data will only serve to embolden the US central bank in its rate hiking plans, in the belief the US economy can take much higher rates. The downside to that is it will be acutely painful for the rest of the world, as the US dollar continues to ratchet higher.
Nvidia shares have slumped sharply on the open after the US government ordered the company to halt sales of its top AI chips to China and Russia, with the company saying it cost them up to $400m in the current quarter. With Chengdu also going into lockdown and China being one of its biggest markets, the next quarter is likely to be a big headwind for the rest of the sector.
AMD shares have also fallen sharply after it said that the new restrictions would prevent shipments of some of its high spec chips to China. Neither company does any business in Russia.
Other chip makers have also come under pressure with Intel, Broadcom and TSMC all under pressure, with Broadcom due to report its latest numbers after the close.
The US dollar has continued to go from strength to strength after today’s weekly jobless claims showed a sharp fall to 232k, which was better than expected, and has seen the US dollar hit a new 20 year high, while the Japanese yen trading through the 140.00 level for the first time since 1998.
We also saw a better-than-expected ISM manufacturing survey for August with softer inflation and higher employment components, it’s very much a goldilocks report if you’re a US dollar bull. Not so much for anything else, which has continued to get absolutely rinsed.
While the Japanese yen continues to get the headlines, the pound is also on the slide, slipping below the 1.1500 level for the first time since March 2020.
Today’s better than expected US economic data has continued to exert further upward pressure on the US dollar, and in so doing hammering metals prices. Gold prices have slipped back towards the lows in July while fears over an economic slowdown are prompting sharp falls in platinum, palladium and copper prices.
Brent crude oil prices have continued to come under pressure, down for three days in a row, on the back of the China Chengdu news, as well as the weak European PMI surveys. The more resilient US numbers haven’t really helped due to the strength of the US dollar.
Upbeat earnings news from Pinduoduo saw the price of its US listing surge yesterday, with read across being seen into peer Alibaba, too. This played out well for CMC’s proprietary basket of Chinese tech stocks, where the underlying reversed the losses from earlier in the week and whilst giving back some gains during the day, still finished around 2.5% higher. That was sufficient to drive daily vol in the basket to 75.04% against 63.47% on the month.
Price action on the usually highly liquid Euro/Swiss cross has been elevated of late, driven by both the hawkish tones from the ECB as well as higher than expected CPI data out of Germany earlier in the week. Having tested one-month highs, some profit taking does seem to be in effect but daily vol advanced to 9.76%, up by more than a third from the monthly reading of 6.98%.
Oil prices remain under pressure amidst those global recession fears. Increased price action is as a result being seen across the sector, with not only WTI Crude making it onto our radar as it posts daily vol of 55.71% against 48.19% over the month, but RBOB Gasoline is on there too at 56.8% against 49.75%, whilst Low Sulphur Gasoil printed 62.01% on the day versus 51.44% on the month.
Finally rounding off with cryptos, Ethereum is the stand out as the coin trades somewhat erratically but in an increasingly narrow range. Daily vol here came in at 86.52% against 68.97% on the month.