Equities are edging lower this afternoon as some traders square up their positions ahead of the Fed meeting. 

Europe

The US central bank are widely expected to cut rates by 0.25%, which would be the third rate cut in four months. Some aspects of the US economy like manufacturing as well as services have underperformed recently, but another rate cut seems excessive seeing as the economy hasn’t digested the previous two cuts yet. Traders believe there is a 94% chance of a 0.25% rate cut from the US central bank despite the fact the unemployment rate is at a 50-year low. In recent weeks, European stocks have enjoyed a positive run on account of the Brexit deal, followed by the extension, but now we are seeing some profit taking.       

Deutsche Bank shares sold-off today after the bank registered a third-quarter loss of €832 million while traders were only expecting a loss of €778 million. Restructuring costs took their toll on the financial institution, but then again the firm is in desperate need of restructuring so the expenses are a necessary evil. Fixed income trading is a big money spinner for the group, but revenue in the department dropped by 13% on an annual basis. Total revenue for the three month period compared with the same quarter last year declined by over 14%, while costs edged higher. The outlook for Deutsche isn’t great as volatility in the financial markets is low, and the depressed interest rate environment is likely to keep pressure in lending margins.

It was reported this morning that Fait are considering a tie-up with Peugeot. The news drove up the share price of both companies. The auto sector has come under increasing pressure on account of a slowdown in global demand, China in particular, while the growth of the electric car industry is challenging well-established brands. Renault were in the running to merge with Fiat, but the French government put the brakes on the deal as the Paris administration were concerned about keeping operations in France, so we might see a repeat of that in relation to Peugeot.

De La Rue shares slumped to a 21-year low as the company issued a profit warning. The group has endured a string of setbacks in recent years. It lost the British passport contract, the Venezuelan government failed to pay its bill, plus the Serious Fraud Office launched an investigation into suspected corruption. The various events put enormous pressure on the group, so today’s warning that annual profits would be ‘significantly lower’ than forecasts rocked confidence even further. Earlier this month, the firm named Clive Vacher as CEO. Mr Vacher is a turnaround specialist, and it seems that his is drawing a line under the incidents that happened before his watch. It is a tough tactic, but it is about starting afresh. In the quarters to come, traders will be listening out for the Clive Vacher’s turnaround plan.               

US

Stocks are subdued as traders await the interest rate decision from the Fed. Chile were due to host the APEC summit next month but it has now been cancelled. Phase one of the US-China trade deal was tipped to be signed at the event, but the progress that has been made in the negotiations should still stand.

The US economy performed well in the third-quarter as it grew by 1.9%, which conformably topped the forecasts of 1.6%. The ADP employment report showed that 125,000 jobs were added this month, but it is a little concerning the September report was revised lower to 93,000 from 135,000. When taken together, the growth and jobs updates still paint a positive picture of the US economy. Despite the respectable GDP numbers, traders are still pricing in a 94% chance of an interest rate cut from the Fed later.  

General Electric posted well received third-quarter numbers. Adjusted EPS were 15 cents, which topped the 11 cents consensus estimate. Revenue was $23.36 billion, which also exceeded forecasts. The free cash flow metric is closely watched as it measures efficiency, and the group upped their full-year outlook to flat-$2billion, while the old outlook was -$1 billion to $1 billion. It would appear that company’s painful turnaround is showing signs of progress.    

Yum Brands shares traded lower as quarterly EPS came in at 80 cents, while the consensus estimate was 94 cents. Revenue for the period was $1.33 billion, essentially in line with forecasts. Earnings were hit as the group changed its fair value of GrubHub stake – which tanked yesterday on the back on a downbeat outlook.        

FX

Volatility in the US dollar index is likely to remain low on the run up to the Fed’s announcement. The greenback has broadly been pushing lower throughout the month as traders are pricing in a high probability of an interest rate cut from the US central bank.

GBP/USD is touch higher as the traders are cautiously optimistic about the UK general election that will take place in December. Volatility in the pound had been lower this week when compared with the moves witnessed in recent weeks. If the pound can hold above 1.2800 mark against the US dollar, it might retest the 1.3000 region.                   

EUR/USD had had a lacklustre session. There were mixed economic reports from the eurozone today. French consumer spending dropped by 0.4% last month, which adds weight to the argument the French economy is stalling. On the bright side, the German unemployment rate held steady at 5%, meeting forecasts.

USD/CAD pushed higher after the Bank of Canada update. The central bank kept rates on hold meeting forecasts, but the statement was a little dovish. The commentary touched on softer commodity prices in addition to trade conflicts, hence why the US dollar pushed higher versus the Canadian dollar.  

Commodities

Gold is higher this afternoon as it has recouped some of the ground it lost in the past two days. The mood of the market is likely to remain muted until the Fed deliver their interest rate decision. Gold has been a little directionless in recent weeks, and the update from the US central bank might snap it out of its trading range.

Oil saw a sharp move lower in the wake of the Energy Information Administration report but has now recovered most of those losses. The update showed that oil stockpiles jumped by 5.7 million barrels, while dealers were only expecting a build of 500,000 barrels. Gasoline stockpiles fell by over 3 million barrels – a larger draw than expected.  

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