market relief

Stock markets in Europe are off the lows of the session, but are still on track to finish in the red.

Europe

Beijing is hitting back at the US in a measured way, as China looks to impose tariffs on approximately $3 billion worth of US imports. Given the US will be slapping levies on $50 billion worth of Chinese imports, it was a fairly tame response from China. This is only the beginning of the economic standoff between the two largest economies in the world, and investors are jittery.

Next shares are in demand today after the company maintained its outlook, despite a tough trading period. The fashion house saw revenues slide by 0.5% and profits drop by 8%. Next described the period as the ‘most difficult’ in 25 years. The industry as a whole is ‘weak’, and recently we saw disappointing updates from H&M and Zara. It is impressive that Next has managed to maintain the forecasts and final dividend in a difficult trading environment. The stock rallied on the announcement, and if it clears 5,000p, it could target 5,259p.

GlaxoSmithKline has dropped its bid for the healthcare division of Pfizer. Yesterday Reckitt Benckiser walked away from its bid for the business. GlaxoSmithKline will be keeping its eyes open for other potential deals, but they must meet their ‘criteria for returns’. The stock is up 3.7%. 

US

US indices are mixed this afternoon, as traders trade lightly in response to China’s plans to put a levy on some US imports. Index futures were firmly in the red this morning, but as traders have digested the reaction from Beijing, market confidence has picked up. It is possible that traders were expecting a more harsh response from China, but this trade war is only beginning. 

Dropbox began trading today and the stock opened at $29, which is a considerable premium on its IPO price of $21.

US durable goods orders rose by 3.1% in February, while economics were expecting an increase of 1.5%, and the January report was revised to a decline of 3.5% from a drop of 3.6%. The core figure saw a rise of 1.2%, which topped the 0.5% increase that economists were anticipating. This shows us that demand is bouncing back after a big decline in January.

In February, US new home sales were 618,000, down from 622,000 in January, and the consensus was for 623,000.

FX

The weakness in the US dollar index today has propped up EUR/USD and GBP/USD. The greenback surged yesterday and today dealers are locking in their profits. The announcement from China that it is going down the route of imposing tariffs on US imports has also put pressure on the US dollar. There were no major economic announcements from the UK or eurozone today.

USD/CAD has been driven lower by the softer greenback and the firmer Canadian inflation reading. The CPI rate in Canada jumped to 2.2% in February, up from 1.7% in January. The core figure jumped to 1.5% from 1.2%. The uptick in the cost of living indicates increased demand, and it could make an interest-rate hike from the Bank of Canada next month more likely.

Commodities

Gold has reached its highest level in over a month as traders are in risk-off mode. The uncertainty surrounding the trader war has made gold more attractive. The talk that President Trump is considering vetoing the spending bill is also playing into the bullish move in the metal. Trade wars tend to be protracted, and this could make gold popular with investors in the near term.

WTI and Brent Crude oil hit their highest levels since early February as concerns about supply are driving the price up. Saudi Arabia has stated it is considering extending the oil production curb into 2019. The largest oil producing nation in the world has a track record of saying one thing, and doing another. There are no guarantees it will fulfil its pledge, but for now the bias is likely to remain to the upside.

At 5pm (UK time) the Baker Hughes rig count will be released, and the consensus is for a reading of 798, down from 800 last week. 

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