Equities

After a quiet start, UK stocks rolled over in afternoon trading on Wednesday. The FTSE 100 dropped below 6,800 with a gain in bank and homebuilder more than offset by a slide in commodity sectors in thin holiday markets. 

Berkeley Group was top riser on the FTSE 100, perhaps for the last time in a quarter ahead of its likely demotion to the FTSE 250. Berkeley led a rise in homebuilding shares  after Nationwide reported house prices rose more than forecast in August.

A report in a German newspaper that Deutsche Bank was considering a merger with rival Commerzbank has raised the prospect of M&A amongst Europe’s biggest banks. Deutsche Bank CEO John Cryan sent mixed messages about the prospect of a merger in comments on Wednesday. On the one side Cryan said his bank is concentrating on reducing its size, but also saying that mergers in the industry are needed for long-term profitability.

Any bank mergers, particularly between those with the same home market would face serious competition concerns given the disastrous consequences of ill-thought out mergers in the lead-up to the financial crisis. The actions taken against Apple in the last 24 hours in the name of competition concerns suggest the EU wouldn’t but an eyelid about preventing mega bank mergers.

HSBC shares were higher after Deutsche Bank increased its price target for the stock despite questioning the viability of HSBC’s holding company structure, suggesting the potential need for a break-up.

Last week’s Jackson Hole conference has seen markets reassess the likelihood of US central bankers finally raising rates this year, a positive for bank profit margins. A rise in the US dollar on renewed rate-hike calls has seen the price of gold, the euro and the Chinese yuan fall with positive effects for European and Chinese stock markets.

Shares in France and Germany were higher amid earnings well-received earnings reports from Bouygues and Iliad.

Stocks in the US opened slightly lower on Wednesday as traders sat on their hands before Friday’s job figures in thin trading before the long Labour-day weekend.

 

FX

FX markets were mixed on Tuesday. The US was dollar higher following a bigger than expected rise in private payrolls in August according to ADP, including a higher revision for July. The dollar gave back some of the gains after the Chicago PMI came in at 51.5, down from 55.8 and wide of estimates of 54.

Mostly disappointing European economic data including Eurozone inflation remaining stuck at 0.2% y/y and German retail sales sliding -1.5% y/y weighed on the euro against the pound. EUR/GBP is attempting another run lower after five days of failed attempts at breaking below 0.85

The British pound gained in choppy trading. GBP/USD breached 1.3150 after data from Nationwide showed a bigger than expected rise in house prices. The pair temporarily slide below 1.31 after strong US economic data before rebounding.

 

Commodities

Oil prices added to early declines after DOE inventory data showed build of 2.27M barrels, higher than the 1.1M expected and on par with the build of 2.5M last week.

The price of gold steadied after giving up nearly $10 and hitting a two-month low following US unemployment data. The precious metal has been under pressure on a mounting belief the Fed could be about to raise interest rates. A disappointing US jobs number on Friday will be needed to quash gold bears.

 

 

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