Stock markets are in the red after traders took their cues from President Trump.

Europe

It was reported that the president isn’t ‘satisfied’ with the way trade talks are going with China. European equities enjoyed a positive run yesterday as Beijing announced its plans to trim the levy on US car imports. The mood isn’t as optimistic now, and dealers cut their equity positions now that sentiment has soured a little. 

Marks and Spencer shares are in demand today after the company announced a full-year profit that exceeded analysts’ forecasts. Full-year underlying profit declined by 5.4% to £580.9 million, while the consensus estimate was for £573 million. Traders reacted positively to the plans to reduce floor space dedicated to clothing by 5% by the end of the year. The clothing department had a poor finish to the year, as like-for-like sales fell by 3.4%, while analysts were anticipating a decline of 1.3%. The retailer spent £321 million on store closures this year, and given their plans to ramp up the rate of store closures, further restructuring costs are likely to be on the horizon. The food division will be the focus of the retailer from now onwards. The share price has been in decline since 2015 but we have seen a bounceback since March, and if it clears 308p – the 200-day moving average – it could retest 328p.

There is speculation that Barclays will merge with Standard Chartered. Edward Bramson of Sherbourne Capital, an activist investor, has built a 5.4% stake in Barclays. Mr Bramson has suggested Barclays should decrease the size of its corporate and investment banking departments. The recommendations from Sherbourne Capital have prompted Barclays to consider a tie-up with Standard Chartered. The two banks complement each other, as Barclays has a big operation in the UK and has US exposure. Standard Chartered is very Asia and Africa focused.

Shares in Deutsche Bank received a bit of a boost after the company stated it is contemplating cutting 10,000 jobs. It appears the troubled bank is seeking to exit the equities business. This is a part of the wider plan to refocus the business on Europe. The stock is still lower on the day.

US

US indices are lower after remarks President Trump made in relation to trade talks with China. President Trump is keen to get the best possible trade deal for the US, and the comments about not being ‘satisfied’ with the progress could be a ploy to extract concessions from Beijing.

The Federal Reserve will release the minutes from the meeting earlier this month at 7pm (UK time). There is talk the US central bank will hike three more times this year, and that is why the US dollar and US government bond yields have been high recently. The announcement will give traders a better clue as to what the Fed is thinking. Traders have hawkish hopes, and if they are not met with hawkish language from US central bankers, we could see sentiment shift.

FX

EUR/USD is under pressure after France and Germany posted disappointing service reports. The two largest economies in the eurozone revealed that service PMI readings that undershot economists’ forecasts, and showed a slowdown in the growth rate. The eurozone has been going through a decline in economic growth and these figures add weight to that argument.

GBP/USD is lower today after the UK inflation rate fell to its lowest level in 13 months. The CPI rate dropped to 2.4%, while economists were expecting the rate to remain unchanged at 2.5%. The slip in core inflation fell from 2.3% to 2.1%, and this confirms the slide in UK demand. The dip in the pound coupled with the resumption of the rally in the US dollar has sent the currency pair to a new five-month low.

Commodities

Gold has been pushed lower today due to the rally in the US dollar, as the strong inverse relationship between gold and the greenback continues. It is worth noting the US dollar index has jumped to a multi-month high, but gold has not fallen to a fresh multi-month low. It is possible the metal is slightly benefiting from the flight-to-quality effect due to the drop in equities. 

WTI and Brent crude oil sold-off after the Energy Information Agency reported a surge in US oil and gasoline inventories. Oil stockpiles jumped by 5.77 million barrels, while the consensus estimate was for a decline of 2 million barrels. Gasoline inventories increased by 1.88 million barrels, but traders were expecting a draw of 1.38 million barrels. The unexpected jump in inventories prompted traders to cash in their long positions as the price has been strong recently.

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