Italian uncertainty is weighing on investors’ minds.

Europe

The anti-establishment coalition partners in Rome are keen to run a budget deficit of 2.4%, and this would go against Brussels wishes. There has been increasing chatter about Italy dropping the euro, but Giuseppe Conte, the Prime Minister, confirmed that Italy will be keeping the euro. The fact that the head of government had to say it, doesn’t instil too much confidence in the country or the currency. The Italian government is standing up to the EU, and this could keep pressure on the Italian government bonds market, and in turn eurozone stocks.  

Ferguson revealed a strong set of full-year figures and admitted the UK division is weak. The firm announced a 15.3% rise in profit and a 7.6% jump in revenue. The operation in the US accounts for 90% of group revenue, and the unit had a ‘particularly strong year’, while trading is ‘tough’ in the UK. Ferguson continues to pay healthy dividends, and the final dividend was increased by 23%, and keep in mind a special dividend of $4 per share was announced in June. The share price has been rising for over two years, and while it holds above the 6,000p mark, its outlook could remain positive.

Royal Mail shares are still suffering from yesterday’s profit warning. The group confirmed they expect full-year performance to be ‘significantly’ below target, and described the conditions as ‘challenging’. The stock has been in a bearish trend since May, and it has fallen to a five year low. If the bearish move continue, it could target 330p.

Meggit were awarded a $323 million contract with a US defence agency. The agreement will last for five years, and there is an option for a further five year extension. The stock price has been in an upward trend since April, and if the positive move continues it could target the 590p region.

US

Stocks are mixed as traders have gotten over the US-Canada trade deal that was announced yesterday. Now that President Trump has wrapped up a trade agreement with Mexico and Canada, he could focus his attention back on China and the EU. Dealers are cautious that Mr Trump might look to ramp up tensions with Beijing on the run up to the mid-term elections as a way of boosting support.

Pepsico shares are lower this afternoon after the company released solid third-quarter-earnings, but trimmed its full-year core earnings. In the last three months, adjusted earnings per share were $1.59, which topped the forecast of $1.57, and revenue was $16.49, while analysts were expecting $16.36 billion. The company warned the strong US dollar was behind the lowering of the core earnings forecast. 

Tesla delivered 83,500 vehicles in the third-quarter, which topped forecasts of 80,500. The lion’s share of the production release were Model 3 sedans, and there was a mix of Model S and Xs also. The release was an 80% increase on the total production output in 2017. The car manufacture claims that the tariffs are hurting sales in China, and it is operating at ‘55% to 60% cost disadvantage’ to cars manufactured locally.

FX

The US dollar index pushed higher today as traders are in risk-off mode. The Federal Reserve hiked interest rates last month, and traders are pricing in a higher probability of an interest rate hike in December, and that could keep the dollar in demand.

GBP/USD is lower due to the stronger US dollar and the continued uncertainty over Brexit. This morning we heard from Arlene Foster, the head of the DUP, and she made it clear that any customs barriers between Northern Ireland and Great Britain would not be acceptable. Seeing as the Conservative Party is dependent on DUP support at Westminster, it will be harder for Mrs May to strike a deal with the EU. Philip Hammond said the UK could enforce a hard border on the island of Ireland in the event of a ‘no deal’ scenario.

EUR/USD has also been hit by the firmer US dollar. The single currency’s recovery from August is looking a little weak, and the political situation in Italy is weighing on the currency. The eurozone PPI report for August was 4.2%, which easily topped the 3.9% that economists were expecting, and the July report was revised to 4.3% from 4%. The announcement shows that demand is strong, but it failed to lift the euro.

Commodities

Gold has driven higher today despite the stronger US dollar – which is unusual given the strong inverse relationship between the two markets recently. The metal is trading around the $1,200 mark once again. Despite today’s upward move, the metal remains in the wider downward trend that began in April, and while it holds below the 50-day moving average at $1201, its outlook could be stay negative.

Oil is largely unchanged this afternoon, but the energy is still near its recent highs. It’s the same old story when it comes to oil, traders are worried what will happen supply when US sanctions on Iran kick in next month. The momentum has been with the buyers recently, and the fear surrounding Iran doesn’t seem to be dissipating.

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