UK & Europe
A resurgent British pound, US markets on holiday and perhaps some back-to-school blues left UK stock markets a little sanguine on Monday.
A surprise jump in UK service sector data saw the domestically-focused FTSE 250 keep hold of early gains whilst the FTSE 100, in which many multinationals benefit from a weaker Sterling, fell into negative territory.
More circumstantial evidence that confidence is high and that the UK remains open for business was seen in a 3.3% rise in UK car sales and a Chinese property developer confirming plans to build Europe’s biggest skyscraper in London.
The G20 doesn’t look like it will throw up any stingers for global markets. Political leaders are focusing on trying to achieve “inclusive” globalisation in order to fend-off a popular uprising against a global system that has seen wealth inequality widen.
Shares of RBS and Lloyds were propping up the bottom of the FTSE 100 after downgrades from Deutsche Bank. The reports follow Deutsche Bank’s suggestion last week that HSBC might need to be broken up to unlock value for shareholders.
Basic resource shares including miners BHP Billiton and Anglo American were amongst the top performers thanks to a jump in the oil prices and better economic data out of China, the world’s biggest consumer of commodities. Randgold topped the index after an upgrade from Numis.
Stocks markets in the US were closed for Labour Day.
The British pound hit its highest against the dollar since July 15 after the service sector rebound confirmed the jump seen in manufacturing data last week and made another round of easing from the Bank of England unlikely. The UK services PMI rose to 52.9 in August, beating expectations of a smaller rise to 50.0 from the sharp fall to 47.4 in July. It is the biggest month-on-month rise since the index was created.
The rebound in services shows it was business confidence in the resiliency of the UK economy that was a significant driver of the turnaround in manufacturing, and not just the devalued currency. It was the indication of a significant economic slowdown from the services PMI in July that persuaded the Bank of England to aggressively ease policy in August. With the UKs service sector comfortably back into expansion, the Bank of England's Mark Carney, Jon Cunliffe, Kristin Forbes and Ian McCafferty could have a difficult time justifying their latest policy action at a hearing of the Parliament’s Treasury Committee on Wednesday.
The Japanese yen as top FX riser of the day was probably not what Bank of Japan governor Kuroda has hoped for when saying there is “ample room” for further monetary easing. The market has clearly lost faith that the BOJ will make any big changes to monetary policy so the strength of USD/JPY is mostly on the back of policy divergence with the Federal Reserve. USD/JPY is finding some temporary resistance at 104.
Chatter from the G20 brought about volatility on oil markets on Monday. Rumours of an agreement reached between Saudi Arabia and Russia sent Brent and WTI crude oil futures over 5% higher in morning trade. However, like most rumours, they came to nothing. A deal between Russian and Saudi Arabia to share technology amongst other things was not the output freeze markets had been hoping for. The oil price gave up two third of its daily gains, but remained higher on the day since the discussion between the two nations bodes well for future agreement.
Precious metals were subdued on Monday after a strong non-farm payrolls fuelled finish to last week.
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