European stocks are set to finish higher on the day, but the wider weekly move has been negative. 

Europe

The possibility of the European Central Bank loosening monetary policy next month has helped with the optimistic sentiment today. Traders are getting used to the idea of the Chinese central bank fixing the yuan above the 7 mark against the US dollar, and the plunge in government bond yields lately has become the new normal. The intense demand for government bonds in recent weeks highlights the fear in the markets, but for now equity traders are content to snap up bargains. The wider concerns about the US-China trade dispute, Hong Kong, Italian politics and Brexit are still bubbling away in the background, and they might resurface next week.        

A technical glitch prevented the London Stock Exchange from opening on time this morning. The situation isn’t ideal, but it hasn’t been the first time it has happened, and it might not be the last. The shortened trading day isn’t a look for the exchange, but ultimately its reputation is still strong. The share price of the group is higher as we approach the close, and that shows us that investor confidence remains firm. The stock hit a record-high earlier this month, and that is impressive when you consider the FTSE 100 only hit an 11 month high in late July.    

US

Equity traders seem to be taking their cues from the bond markets, and seeing as bond yields have retreated a little, dealers are cautiously buying up equities. The extreme moves in US government bonds markets this week dictated the moves in stocks, and battle between the inversion of the yield curve and the raw economic data continues. The US economy is in good health as unemployment is low, wages are high, and spending is strong, but the enormous drive of cash into government bonds has spooked equity traders. The University of Michigan consumer sentiment survey slipped to 92.1 from 97.2 in July, and it is likely the announcement of new Chinse tariffs impacted the sentiment.   

Nvidia shares are in demand today on the back of the second-quarter update yesterday. EPS was $1.24, which topped the $1.15 forecast, and revenue came in at $2.58 billion, and the consensus was $2.54. Last year the company registered record sales, but in light of the slowdown in China and the fall in popularity in cryptocurrency mining, things have cooled a little, and the group is returning to the ‘normalisation’ of the business. The outlook was mixed, as the revenue undershot analysts’ forecasts, but the gross margin projection exceeded forecasts.

General Electric shares have bounded back today after equity analysts defended the group against claims that the accounts of the firm did not accurately represent the financial health of the company. The stock slumped yesterday after a report claimed the group was a &lsquo bigger fraud than Enron’, and it claimed fraudulent behaviour is covering up enormous loses. GE deny the claims, and it was reported the CEO, Larry Culp, bought nearly $2 million worth of stock yesterday to highlight his confidence in the company.

 FX

EUR/USD is in the red again in the wake of Olli Rehn’s comments yesterday. Mr Rehn is a member of the ECB and he called for a big stimulus package to be announced next month. The Fed cut rates last month and there is speculation they will cut again next month, and it looks the ECB is edging towards to rate too.

GBP/USD continues to push higher from yesterday’s strong performance. At the start of the week, dealers were fearful of a no-deal Brexit, and to an extent those fears are still circulating, but the respectable economic reports from the UK this week helped the pound. The core CPI and retail sales figures paint a picture of firm demand, and that has lifted sterling.  

Commodities

Gold is in the red today as traders are in risk-on mode, and dealers are cashing in their gold positions, and pouring their funds into riskier assets like stocks. The mood has lighten a little when it comes to the macroeconomic outlook, but seeing as gold hasn’t moved that much lower compared with the rally in stocks, it suggests that fears still exist.

Oil is largely unchanged today even though OPEC have cut their 2019 global demand forecast to 1.1 million barrels per day, and the previous guidance was for 1.14 million barrels per day. It’s not exactly a surprise that the outlook has been lowered as China is cooling, and the UK and Germany posted negative growth recently.  

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