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FTSE100 set for sixth day of gains on weaker US data

The FTSE 100 looks set for its sixth day of daily gains as it looks to build on its strong start to the week yesterday, helped by some of the factors that drove yesterday’s momentum, as lower yields and softer economic data reinforced hopes of a US rate pause next month. 

Europe

Housebuilders are having another decent day after yesterday’s strong session which appeared to be driven by the announcement that the government would be watering down EU environmental rules, which could help speed up the planning process for new build homes. Persimmon, Taylor Wimpey, and Barratt Developments appear to be leading the gainers in the sector. 

Prudential shares are enjoying a decent session, having dropped to their lowest levels this year earlier this month, they’ve pushed to the top of the FTSE 100, after reporting adjusting operating profit of $1.46bn, a 4% improvement on last year’s $1.41bn. The improvement was driven primarily by a strong performance in new business which posted a 36% improvement over H1 of last year, coming in at $1.49bn. even though today’s numbers came in better than forecast the comparatives from last year worked in its favour given that various lockdowns that were implemented across the Asia region over the same period last year, weighed on last year’s profits.

Also on the up, Mexican gold and silver miner Fresnillo is gaining on the back of the rise in gold and silver prices to four-week highs. 

US

After three days of gains US markets opened slightly higher with the S&P 500 hitting a three-week high, after the latest US Q2 GDP numbers saw a modest downgrade from 2.4% to 2.1% and the latest ADP payrolls report saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k.

HPshares have dropped sharply after the PC maker cut its full-year profit forecast to between $3.23 and $3.25 a share from $3.30 and $3.50. The company said that demand was weaker than expected, and that consequently it expected full year cash flow to be lower than expected. Q3 revenue fell 9.9% to $13.2bn, with PC sales to business being the main laggard. Consumer PC sales were better than expected. Printing revenues were also softer at $4.3bn, below forecasts of $4.57bn.

Brown-Forman shares have been on the receiving end of a hangover after the Jack Daniels maker reported Q1 profits that came in below forecasts at $0.48c a share even as revenues rose 3.1% to $1.04bn. Despite the miss on headline profits Brown-Forman said they still expected to full year net sales of 5% to 7% and reaffirmed their full year outlook.

After yesterday’s big surge in bitcoin after a US court cleared the way for a Bitcoin ETF, the shares prices of the likes of Coinbase, Marathon Digital and MicroStrategy which saw big gains yesterday, have slipped back.

FX

The US dollar has slipped back across the board after a weaker than expected Q2 GDP adjustment and a softer August ADP payrolls report. Today’s slightly softer than expected economic numbers on top of the weaker numbers yesterday appear to be adding weight to the idea of a Fed pause in September, adding to further downward pressure on yields into the bargain.

The pound is holding up well even as the latest credit and mortgage data showed that higher rates are starting to bite, after mortgage approvals slowed more than expected in July to 49.4k, while consumer credit slowed to £1.2bn from £1.6bn. In a sign that interest rate hikes are starting to work the latest M4 money supply data showed a sharp contraction of -0.9% on an annualised basis, and the weakest reading since early 2015. This ought to act as a warning to the Bank of England that monetary policy is tight enough already, however markets are still pricing in at least one more hike for next month.

The euro is also higher, back above 1.0900 again after German CPI came in above forecasts at 6.4%, and Bundesbank President Jochen Nagel said that more rate hikes were needed.

Commodities

Brent crude, and US WTI oil prices have pushed up to their highest levels in two weeks as Hurricane Idalia hits the Florida coastline, and reports emerge that Russia is looking to persuade its OPEC+ allies to extend oil export output cuts into October. With indications that Saudi Arabia is also thinking along similar lines the oil market looks set to continue to remain tight well into year end. US inventories fell by 10.58m barrels last week, more than the 6.8m expected.

Gold prices have continued to push higher, rising to four-week highs, helped by the weaker US dollar, as well as continued weakness in US yields.

Volatility

Markets on Wall Street were left in a skittish mood on Tuesday after a significant decline in employment vacancies rattled sentiment. News like this will play into the Fed’s next move so in turn served to drive the safe haven appeal of gold, with the metal’s price advancing to levels not seen in more than three weeks as a result. The close on 1% gain off the back of the data miss was sufficient to drive one day volatility to 10.63% against 9.28% on the month. However, the price reaction of those stocks involved in gold production was even more pronounced. CMC’s proprietary basket of US-listed gold miners also rallied hard, returning to the resistance level seen at the start of the month. One day vol on the cohort printed 41.08% against 35.7% for the month.

That flight for perceived safe haven assets offered cryptos a welcome boost, too. The legacy bitcoin price advanced around 7.5% before giving back some of the gains, but activity amongst altcoins was even more pronounced. Bitcoin Cash added more than 15% off the back of the employment data and again whilst some of these gains were given back, one day vol stood at 118.43% against 79.25% for the month.

Concerns over that employment data also rattled the greenback, although with the Dollar Index having worked its way back to two and a half month highs, there was no shortage of profits to be taken. NZD/USD proved to be the most active pair, with one day vol of 14.07% against 10.95% on the month being reported, but the elevated levels of action hit even the highly liquid Euro/Dollar trade with one day vol of 9.16% versus a monthly print of 6.63% reported.


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