Disappointing earnings from Reckitt Benckiser and Travis Perkins and a muted reaction to Chinese GDP data saw stocks in the UK edge lower on Wednesday.
The British pound continues to progress at it approaches the two-week anniversary of its flash crash. Broadly positive labour market data, including a rise in earnings excluding bonuses since the referendum vote, saw the cable rate pop back above 1.23.
China-sensitive basic resource shares were among the best performers following the Chinese economic data, though other factors contributed. A rebound in the oil price and Glencore flagging the early signs of a commodity price recovery played a part in mining firms outperforming.
The takeaway from the Chinese data is that government stimulus and credit expansion has stabilised growth. A potential problem looking forward is that China’s stable growth has come at the cost of a ballooning housing market. The government will probably need to change policy to deflate house prices in the coming months before it becomes a risk to financial stability.
A profit warning, store closures and job losses saw Travis Perkins shares slump 6% on Wednesday. The builders merchant has lost almost a quarter of its value since the EU referendum vote. The uncertainty around future demand for building supplies shown by investors since Brexit is clearly shared by the Travis Perkins management.
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Politics appears to be playing a part in US investor uncertainty at the beginning of earnings season. The third debate between Donald Trump and Hillary Clinton is overshadowing what has been a majority of companies beating consensus earnings estimates. Overnight, the tech industry saw two of its heavyweights, Intel and Yahoo, beat estimates. Morgan Stanley and American Express are among the companies reporting earnings on Wednesday.
The third debate is what sticks in voters’ minds when heading to the polling booths. Both candidates have the gunpowder to explode the other's campaign, if they can get the message across in the debate. Mr Trump’s alleged sexual assaults have seen his popularity drop in the polls. The WikiLeaks release of the Clinton campaign chair John Podesta’s emails as well as James O’Keefe’s video series on the Democratic party have yet to make a dent on Hillary Clinton’s status as favourite to win the presidency.
US pre-opening levels
S&P 500: 3 points lower at 2,136
Dow Jones: 20 points lower at 18,141
Nasdaq 100: 16 points lower at 4,823
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