Stock markets in Europe are in the red heading into the close as political uncertainty in Italy has taken centre stage. 

Europe

Giuseppe Conte resigned as Prime Minister of Italy, and that could bring about political upheaval in the third-largest economy in the eurozone. The nation’s banks haven’t fully recovered from the credit crisis, and the financial institutions have massive exposure to the government bond market, which is likely to come under pressure due to the political uncertainty. Italy could be facing a general election in a few months. The Italian political news isn’t a shock, but nonetheless it chips away at investor confidence.      

Persimmon’s first-half update was a continuation of the company’s trading update that was posted in early July, whereby average selling prices were higher, but homes sold, revenue and profits were lower. The group announced that forward sales were lower, but at the same time the company is focusing on quality rather than quantity. Profit margins are likely to be squeezed as the company cautioned that inflation costs are likely to be 4%. The stock hit a record high 14 months ago, and it has been pushing lower since, and it has become clear that Persimmon is past its peak earnings.

It was more bad news for the major players of the UK supermarkets sector, according to Kantar. The research firm found that Tesco, Sainsbury’s, Asda, and Morrisons lost 1.6%, 0.6%, 1.5% and 2.7% respectively of their market share in the three months until mid-August. The rise of the deep discounters continues as Lidl and Aldi saw their market shares increase by 7.7% and 6.2% respectively. The retail environment has weakened, and some consumers are only willing to spend money if it is a bargain, and that is hurting the ‘big four’. Ocado saw a surge in popularity, and this underlines change in shopping habits.         

AstraZeneca confirmed that its Fraxiga drug – a treatment used for diabetes achieved the main aim of its study. The results showed that Fraxiga helped lower the risk of death by a heart attack ,and that will increase the chances of the treatment getting approval from the regulator.      

US

The Dow Jones and S&P 500 are a touch lower as traders remain a little on the nervous side due to the ongoing concerns about the global economy. There is still no end in sight to the US-China trade dispute, and a lack of major economic announcements from the US today has led to a subdued session.   

Home Depot shares are a little higher this afternoon even though the company posted a lukewarm update. Second-quarter EPS was $3.17, which topped the $3.08 forecast. Revenue edged up by 1.2% to $30.84 billion, which was just shy of the $30.99 billion forecast. Same store sales edged up by 3%, but dealers were expecting 3.5%. The numbers were respectable, but the outlook was lowered. Home Depot anticipates sale growth to be 2.3%, and same stores sales to increase by 4%, while it previously predicted growth of 3.3% and 5% respectively. The stock is higher on the session, and it is not too far off its all-time high, which is impressive when you consider the S&P 500 is still well-off its all-time high.

Medtronic shares hit a record high on the back of the solid quarterly results. Earnings slipped, but revenue edged up and topped forecasts. The group raised its full-year EPS guidance to between $5.54 and $5.60, while the previous forecast was $5.44-$5.50, and the consensus estimate was $5.48.              

FX

GBP/USD spent much of the day in the red, but it quickly turned higher after Angela Merkel called for a ‘practical solution’ for the Northern Irish border situation, and traders snapped up sterling on the back of the news as it suggests the EU might be softening their stance. The UK CBI industrial order expectations report improved in August to -13, from the -34 level in July – which was the weakest since 2010.

EUR/USD hasn’t moved much today as traders remain cautious of the single currency due to the political uncertainty in Italy, and the slide in CPI in the region This morning, German PPI cooled to 1.1% from 1.2% and that adds weight to the argument the country is heading towards a recession.                

Commodities

Gold is in demand this afternoon as the metal is being sought after by traders that are seeking a safe haven in light of the negative moves in stock markets. Gold has enjoyed a bullish run recently, and last week it reached a six-year high, and the bullish trend is still intact.  

Oil is lower as the old concerns about the state of the global economy have returned. The energy is a good gauge for demand around the world, and given the worries in relation to the US-China trade spat, unrest in Hong Kong, and fears about a recession in Germany, the energy market is softer.           

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

 

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.