Stocks are firmly in the red heading into the weekend. 

Europe

It has been a brutal week for the markets as the global equity rout has shattered investor confidence. Concerns about higher interest rates in the US, global trade tensions and a potential political fight between Italy and the EU have all played a role in the decline. The FTSE 100, DAX 30 and CAC 40 are all trading below their respective 200-week moving averages, and that points to very bearish sentiment.

RBS shares lost ground today after the bank posted profits that failed to live up to market expectations, and the bank also set aside £100 million for the possibility of an economic downturn because of Brexit. The bank confirmed that third-quarter profit jumped by 14.3% to £488 million, but equity analysts were expecting £507 million. It is encouraging to see that the bank is making a provision for the possibility of an economic slowdown, but at the same time the fact they mentioned it adds to investors’ worries. The operating expenses increased by 14.2%, and litigation and conduct costs jumped by 211%. The Dutch regulator confirmed that RBS can service its EU clients, from its Amsterdam office after the UK leaves the EU. The share price has been in decline since January, and if the negative move continues it could target 212p.  

IAG stated that third-quarter operating profit was €1.46 billion, which narrowly topped the forecast of €1.43 billion. Revenue for the three month period ticked up by 8.5% to €7.14 billion, and traders were expecting €7.08 billion. Fuel costs rose by 14%, which isn’t surprising given that oil has rallied over the summer. The airline anticipates full-year profit to increase by €200 million on last year’s €2.95 billion. The figures were broadly in line with the sector, and the optimistic outlook was welcomed by shareholders.

Glencore posted a respectable production update. Copper, cobalt, and nickel production rose by 12%, 44%, and 13% respectively. The mining giant largely left the full-year production guidance unchanged, but it reduced its oil production forecast by 6%. 

Valeo shares slumped today after the firm lowered its revenue and earnings target. The auto parts company cited a slowing Chinese economy, and sector disruption due to European emissions tests for the revised guidance. The stock has been in a downtrend throughout 2018, and if the bearish move continues it could target €20.00. 

US

The S&P 500 has fallen into correction territory as the decline in stocks intensifies. Amazon and Alphabet shares are in the red after both companies missed on revenue forecasts last night, and Amazon’s guidance was also below the consensus estimate. US tech stocks set a series of record-highs throughout the summer, and they were the first to fall in the recent market rout. There is a sense that the tech sector is setting the pace for the rest of the world.

The third-quarter advanced GDP reading was 3.5%, which topped the 3.3% forecast that economist were expecting, but keep in mind the economy grew by 4.2% in the second-quarter. The University of Michigan consumer sentiment survey dipped to 98.6 in October, down from 100.1 in September.

The US economy is ticking along nicely and it is likely the Federal Reserve will stick to its hiking policy. President Trump has criticised the Fed for hiking rates, but he also likes to take the glory of a growing economy. Its time he learned that the two are interconnected.

FX

The US dollar index has been on the rise recently and the solid GDP numbers helped too. The greenback is set to retest the August highs, and it could be on the verge of hitting a 16 month high.

EUR/USD is lower on account of the firmer greenback. It was been a quiet day in terms of economic news in the eurozone. French consumer confidence came in at 95, up from 94 in the previous reading. The single currency has been drifting lower since mid-September, and it might target 1.1300.

GBP/USD is in the red too and Brexit uncertainty continues to hang over the pound. Traders are looking ahead to next week’s UK budget, the Bank of England (BoE) meeting, and the inflation report. The recent slide in sterling may prompt the BoE to raise the inflation forecast, which might push up the pound.

Commodities

Gold is higher today as the metal is benefiting from the risk-off attitude of traders .The severe sell-off in global stocks has shaken investor sentiment, and some dealers are seeking out assets that are deemed to be lower risk, and gold is popular at the moment.

Oil prices are lower again and are heading for their third straight weekly loss as the Saudi Arabian OPEC governor claimed the market is heading for a state of oversupply in the fourth-quarter. Concerns about the health of emerging market economies, and in turn demand for the energy have been a factor too in the commodities decline.

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