The rally in the pound is hurting the FTSE 100. This has been a common situation in the past week, where the jump in sterling has dented the international equity index.

Consumer companies like Diageo, Reckitt Benckiser, and Unilever have lost ground, and health stocks like AstraZeneca and GlaxoSmithKline are in the red too. All of those stocks are global companies that derive much of their earnings outside the UK, and the stronger pound is hurting these stocks. The FSTE 100 is also underperforming on account of a fall in mining stocks like Anglo American and Rio Tinto. The decline in Chinese imports over the weekend has hurt the mining sector, as the country is a big buyer of minerals.

Lloyds continues to be haunted by PPI as the bank will set aside an additional £1.2-£1.8 billion in provisions for the mis-selling of the product. The scandal has already cost the bank in excess of £19 billion, and in light of today’s update the group will halt is share buyback scheme. The cut-off for the applying for compensation for the mis-selling of PPI was last month, and Lloyds saw a ‘significant spike’ in the number of people claiming. The provision announced today should be the final one for Lloyds.

Associated British Foods issued a mediocre trading update. The strength of Primark more than makes up for the weakness in the sugar business. Primark’s increased selling space helped offset the 2% decline in like-for-like (LFL) sales. UK consumers have become savvier in recent years, and it says a lot about the state of the British retail sector when Primark is enduring a dip in LFL sales. The company kept its full-year outlook. The stock is slightly lower on the day.

HSBC upgraded Berkeley Group to ‘buy’ from ‘hold’ and raised its price target to 4,540p from 4,130p.

Thomas Cook is in the news for the wrong reasons again. The travel group is in desperate need of funding, and Fosun are lined up to throw the group a lifeline in exchange for the bulk of the group’s travel business and a minority holding in the airline. The trustees of Thomas Cook’s pension scheme are demanding assurances that Fosun will pay £25 million per year for the maintenance of the fund.

US markets

The S&P 500 and the Dow Jones are making further headway today as traders are still hopeful about the US-China trade talks that are planned for next month. When it comes to the trading relationship between the US and China, traders’ take the view that no negative news is positive news, and the fact that talks are scheduled to take place, has lifted sentiment.  

AT&T shares have jumped today after it was reported that Elliott Management acquired a $3.2 billion stake in the group.  The activist investor is ‘cautious’ about the prospect of the AT&T-Time Warner deal paying off, and it said that operational setbacks are responsible for the group’s underperformance. The fund claims that AT&T has ‘world-class’ assets, but the stock could be worth up to $60. The move should make AT&T’s management up their game as the pressure is on now.       

FX update

GBP/USD has been helped by positive UK data and commentary from Prime Minister Johnson. It was estimated the UK economy grew by 0.3% in July on a month-on-month basis, and that comfortably topped the 0.1% forecast. Mr Johnson was speaking in Dublin earlier, and he reiterated his desire for a deal with the EU, and that encouraged dealers to snap up sterling.

EUR/USD is higher over chatter about a fiscal stimulus package from Germany. Berlin likes to balance the books, and there has been conflicting reports about the possibility of such a package, but for traders are hopeful that it will go ahead.           

Commodities update

Gold is in the red as the risk-on strategy by traders has hurt the metal. The commodity has dropped below the $1,500 mark, as traders are content to take on more risk and invest in riskier assets like stocks. Despite today’s negative move, the metal’s wider upward trend is in force, and while it holds above the $1,480 region the bullish trend should hold.

Oil has rallied today after the Saudi energy minister said the pact to curb oil production across OPEC and non-OPEC members could last ‘until death do us part’. The firm commitment to keep production down has sparked a spree of buying in the energy sector. When it comes to keeping output, Russia deem it to be business as usual. 

 

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