Stock markets in Europe are showing large losses as traders are fearful the rebound in the eurozone economy is cooling. 

Europe

The flash manufacturing and services data for August from France was disappointing and the German reports were not great either, so there are concerns the two largest economies in the euro area could be moving down a gear. The numbers from France were worrying as the readings missed economists expectations’ and they showed declines from the previous updates, in fact, the manufacturing report showed negative growth in August. In contrast, the UK manufacturing and services updates showed decent growth on the month as well as exceeding forecasts, but the FTSE 100 has been dragged lower by its continental counterparts. In London, oil, banking and house building stocks are broadly in the red. The airline industry has been given a bit of respite, and that is likely down to the news the UK government has added Portugal to the safe-to-travel list.       

Rolls-Royce revealed that it will enter into a strategic partnership with Reaction Engines to develop high-speed aircraft propulsion systems, the tie-up is worth £20 million. The London-listed engineering giant has been struggling lately, as it had had issues with its engines, Trent 1000 and XWB-84, and the pandemic has caused major disruption in the aviation sector. Rolls Royce will post its first half numbers next week.   

Premier Oil shares are in the red again after the company announced plans to raise $530 million from an equity release yesterday. When the funds are raised, $230 million will be paid to BP for North Sea oil assets, and $300 million has been earmarked to pay down debt. Premier extended its $2.9 billion credit facility from May 2021 to March 2025.  

After the close of trading yesterday, Bayer announced it will pay approximately $1.6 billion to resolve the Essure birth-control device situation - nearly 39,000 women have made complaints about the product. It is understood the device has caused injuries. When it comes to compensation, costs can quickly spiral, so Bayer could possibly have more financial pain in the pipeline. 

DCC shares are in the red as Barclays downgraded the stock to equal weight from overweight, and the price target was cut from 8,100p to 6,900p.      

US

The mood on Wall Street is a little upbeat thanks to the robust economic updates. The flash manufacturing and services PMI reports came in at 53.6 and 54.8 respectively, both topped forecasts and showed growth on the July readings. The existing home sales update for July was 5.86 million, and that was higher-than-expected too. There is an argument to be made the US economy is rebounding faster than the eurozone, hence why the S&P 500 is showing a modest gain.

Deere & Co posted respectable third quarter numbers. EPS was $2.57, which topped the $1.26 forecast Revenue was $8.92 billion, which comfortably exceeded the $6.7 billion consensus estimate. Today’s results mark the fourth consecutive time that Deere’s quarterly EPS and revenue metrics have topped analysts’ forecasts. The farming-equipment manufacturer raised its full-year outlook as it now expects annual net income to be in the region of $2.25 billion, while the previous forecast was $1.6-$2 billion. Deere shares hit a record high.

Foot Locker shares are in demand on the back of the well-received second quarter figures. EPS was 71 cents, and that smashed the 57 cents forecast. Revenue was $2.07 billion, which was narrowly ahead of forecasts. Same store sales surged by over 18%. The retailer is almost back to normal business as nearly all its furloughed employees have been called back to work, while California is the exception.

Tesla shares are driving higher and the stock has set yet another record high.         

FX

The US dollar index has jumped as the greenback is in demand due to the wider risk-off mood. The dollar has been a popular safe-haven trade in the last few months. It is worth noting that the greenback was coming from a low base as during the week it fell to its lowest level in over two years.

EUR/USD and GBP/USD have been hit hard by the sharp move higher in the greenback. The dollar’s dominance has been felt by the euro and the pound – but in recent months both currencies we lifted by the greenback’s weakness. The UK flash manufacturing and services PMI reports came in at 55.3 and 60.1 respectively – which was a nice surprise, but the lack of progress in relation to UK-EU talks has put pressure on the pound.

Commodities

The jump in the dollar has hurt gold and silver – both assets have enjoyed bullish runs recently, which was partially because of the weaker dollar, so now we are seeing a reversal of that. Earlier this month, gold set an all-time high, while silver reached its highest level in over seven years, so the firmer greenback today has encouraged some dealers to take some money off the table. The commodities are in the red, but they are still comfortably above last week’s lows.  

Brent crude and WTI are showing sizeable losses as the disappointing data from the eurozone has prompted dealers to dump oil for fear the economic recovery is under threat. The global economy is interconnected, so tapering off in growth in continental Europe is likely to be felt in the UK, the US and China. At the latest OPEC+ meeting, the group said it expects demand in 2020 to fall by 9.1 million barrels per day, but it could fall by up to 11.2 million (bpd) if there is a second wave of coronavirus.