The FTSE 100 is firmly in the red on the back of the surge in sterling, which was triggered by hopeful comments from Angela Merkel in relation to the backstop.  

Europe

The inverse relation between the pound and the FTSE 100 is hitting the British index hard. The equity benchmark has large international exposure, and the pound’s rally is causing the pain.

The Bundesbank said it doesn’t see the need for fiscal stimulus now, and that announcement caused the DAX to lose further ground. Earlier in the week, the chatter about a stimulus package from the German government assisted eurozone equity markets, and now we might be in weakness in the near-term.

NMC Health shares rallied today on the back of chatter that two investors are interested in acquiring a 40% stake in the group. One of the investors is alleged to be backed by Fosun, and seeing as there has been a series of Chinese investments in the Middle East in recent years, the move wouldn’t be surprise. The upward move in the stock was accelerated by the fact it is the most shorted stock in the FTSE 100.        

CRH shares have gone from bad to worse today even though the group revealed respectable first-half figures. On a like-for-like basis, first-half earnings ticked up by 5%, and the group launched a new share buyback scheme worth €350 million. The returns to shareholders is thanks to the group’s strong cash flow. The company derives the majority of its earnings in the US, and the chatter about a slowing US economy has increased on account of today’s services and manufacturing data, and that added to CRH’s decline.    

US

The S&P 500 is in the red as a mixture of underwhelming economic data from the US, and a neutral update from the Fed yesterday put pressure on US socks. The services PMI reading slipped to 50.9 from 53 in July – which shows minimal growth, and the manufacturing PMI reading drifted into contraction territory as the reading was 49.9. The reports point to a slowdown in the US economy. Seeing as the Fed minutes didn’t drop any clues about further rate cuts, traders will be looking ahead to Jerome Powell’s update tomorrow.    

It was reported that Volkswagen are interested in buying a stake in Tesla, and it believed the German carmaker could benefit from such a move seeing as Tesla have performed well in software and batteries. Tesla shares are up slightly on the report.    

Nordstrom shares are higher today even though the group revealed a mixed set of second-quarter numbers. EPS comfortably topped forecasts as they came in at 90 cents, and traders were expecting 75 cents. Revenue for the period was $3.87 billion and that was shy of the $3.93 forecast. The group now expects full-year revenue to slip by 2%, and the previous forecast was for between zero growth and a decline of 2%.The EPS outlook was lowered also as the firm now expects EPS to be $3.25 and $3.65, and the old forecast was for $3.25-$3.65. Digital sales increase by 7%, and it now accounts for 30% of total sales, while last year it only accounted for 28%, so the group is moving in the right direction.         

FX

GBP/USD has rallied on the back of comments from Angela Merkel, the German Chancellor said that a solution can be found to the backstop that will uphold the terms of the Belfast Agreement 1998, and maintain the integrity of the single market. The optimistic message from Mrs Merkel has acted as a green light to all those traders who were too scared to buy the pound on account of Brexit uncertainty. The situation is far from resolved, but it suggests we are heading in the right direction.    

EUR/USD was trading higher on the day but it gave up its gains. France and Germany revealed well received manufacturing and services data, but the optimism has faded. French manufacturing swung from 49.7 to 51 in August, and the German services PMI was fractionally lower at 54.4.           

Commodities

Gold has been given a little help by the softer US dollar as the inverse relationship between the two markets continues to play out. The greenback took a knock, and it has helped the metal hold above the $1,500 mark. The metal has been in a strong upward trend in recent months, and if the wider bullish move continues it might retest the $1,535 area.

Oil is lower today as traders remain cautious about the US-China trade situation, and the disappointing US data added to the sell-off. The fact the Fed minutes weren’t overly dovish last night is an issue for oil too, as the prospect of looser monetary policy from the US might have helped the energy, but we will hear from Jerome Powell tomorrow at the Jackson Hole Symposium.         

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