Europe

European markets, after a subdued start, have managed to build on the gains of yesterday, as investors try and gauge the reliability of the more positive mood in the wake of the sharp falls at the end of last week.

Italian markets have led the way, rising over 1% on optimism that Italian politicians will be able to cobble together a new coalition under the stewardship of Giuseppe Conte. While investors are looking at a potential tie-up between the Democrats and Five Star as a positive, it is hard to see how they will be anything other than uneasy bedfellows, given how they are likely to disagree on a number of key areas.

The reason for Five Star’s success in gaining a decent vote share was its opposition to the established order, of which the Democratic Party is a key pillar. Jumping into bed with politicians who they have previously been highly critical of may not go down well with its grass roots support and could cost them dear, when new elections finally come around.

Reports that China’s State Council announced that it is looking at easing restrictions on auto sales in an attempt to try and boost domestic demand, appear to have given other markets in Europe a bit of a lift as well.

A compromise agreement between the US and France on the latter’s digital tax has also helped oil the wheels of risk, though it is notable that bond market yields have remained on the soft side reflecting a certain degree of prevailing caution, about further tariff escalations.

In company news Bunzl reported a rise in first half revenue of 4.3% to £4.5bn with operating profits rising from £210.8m a year ago to £239m. there was some initial disappointment on the back of these numbers as the shares fell to their lowest levels since March 2018. This weakness proved to be short-lived, with the shares paring their losses as the day has progressed.

Daily Mail and General Trust shares are on the rise after the company agreed a deal to dispose of Genscape, its energy information business to Verisk for $364m.

British American Tobacco shares have gone up in smoke on the news from across the pond that Philip Morris International is exploring a merger with Altria.   

US

US markets opened higher this afternoon helped by the softening of tone by President Trump over China trade, however they still remain well short of the levels prior to Trump’s Friday tweet storm.

An announcement of an agreement between France and the US on its proposed digital tax has also helped. France has said it would eliminate its tax once a new international agreement on digital taxation is reached, with the companies that paid the tax reimbursed once that agreement is in place.

Stocks in the news include that tobacco giant Philip Morris is exploring an all stock merger with Altria ten years after they companies went their separate ways.

The biggest mover on the Dow is Johnson and Johnson after the company was ordered to pay $572m Oklahoma state as part of a settlement for the part the company is reported to have played in the opioid crisis. This was a much lower number than had been expected and if replicated elsewhere could see the extent of the pharmaceutical sectors liabilities in this regard reassessed sharply lower.

In a sign that the US consumer appears indifferent to the ratcheting up of trade tensions, August consumer confidence came in at 135.1, only marginally lower than this year’s highs of 135.8, which we saw in the July numbers.

It also complicates the rate cut story narrative for the markets as well as the Federal Reserve, thus making it much more difficult to argue that the US economy needs the sort of aggressive rate cut action currently being priced in by bond markets.   

FX

Currency markets started the day in a rather subdued fashion with the euro trading in a ten point range in Asia, as investors looked towards the next developments in the US, China trade story. The pound has had a good day on the back of reports that a caucus of MPs are looking to formulate a plan to prevent a no deal Brexit.

While this may seem a plausible possibility, it ignores the fact that to prevent the UK leaving the EU without a deal MPs still only have one plausible option and that is to revoke article 50. Either that or they have to hope the EU is open to extending article 50, assuming that they get asked to do so. Nonetheless the pound has continued to gain ground and is the best performing G10 currency over the course of the last five days.  

Commodities

Gold prices have remained fairly well supported today as the haven trade continues to see inflows but its silver prices that have outperformed, pushing up towards their highest levels since September 2017. On a relative basis silver is much cheaper than gold, and as such has quite a bit of ground to catch up from the record highs of just shy of $50 that we saw back in 2011, and with yields set to remain low the cheapness of silver relative to gold is likely to make it a fairly attractive option, as a haven in the longer term.

Crude oil prices have continued their rebound in line with the more positive tone from equity markets, however as with stocks they are still well below the highest levels of last week.

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