Stocks are in the red heading into the close as traders are worried about the state of politics.
Europe
The Conservative party have lost their majority in the commons as Philip Lee defected to the Lib Dems. Tonight, there is a crucial vote in the commons whereby law makers will vote on a three month extension, and depending on the outcome, a general election could be announced in the next 24 hours. The political rumblings in the UK, and the worries about US-China trade spat is weighing on sentiment across the board.
Tesco confirmed it will be offloading its mortgage book to Lloyds for £3.8 billion, and the move is part of a process of focusing on its core business. Capital will be freed up and that can be deployed to retail operation, which after all is the focus of the organisation. Margins in the supermarket sector are under pressure, but they are also under pressure in the lending market, and in light of the sharp move lower in gilt yields, the UK mortgage market is likely to feel the pain in the medium-term. Lending is at the core of Lloyds business, so the deal means both businesses are getting back to basics.
Ferguson shares are higher this afternoon on the back of the company will sell-off its UK unit, and focus entirely on the US business. If the move gets the backing from shareholders, the UK division could become a separate London listed group. Activist investor, Nelson Peltz, owns nearly a 6% stake in the group and he has been pushing for this move for some time, and he is close to getting his way. The demerger, should allow the Wosley operation focus on the UK, while the Ferguson business can commit itself to ‘attractive markets in North America’.
Just Eat Group shares are a little lower today after Eminence Capital, an investor in the group, said it would vote against the merger offer from takeaway.com. Eminence holds a 4.4% stake in Just Eat, and even though they see value in the merger, they feel the offer is ‘grossly inadequate to Just Eat shareholders’. The announcement from Eminence sends out a message that investors are being short changed, and that has hit the stock price.
US
The Dow Jones and the S&P 500 are back in business after being closed yesterday for Labour Day. Despite the optimistic commentary from China and the US in relation to trade, traders are nervous about the fact that that ante has been upped in terms of tariffs from both sides. The ISM manufacturing report was 49.1 – its lowest reading since January 2016. All components of, the report, employment, prices paid, new orders, were all in contraction territory, and this underlines the weak manufacturing sector around the world.
Boeing shares are in the red after it was reported the 737 Max aircraft could remain grounded in the short-to-medium term. Some airlines fear the aircraft won’t be brought back to services until 2020, and keep in mind place was grounded in March. Traders are likely to remain cautious of this stock until the cloud of uncertainty has listed.
FX
It was a volatile session on the currency markets. Politically uncertainty in the UK hit GBP/USD hard this morning, and it fell to a level not seen for over 30 years, but the currency pair in now up on the day. Uncertainty persists ahead of the vote in the commons in relation to an extension today, but it would appear that a lot of the negative news has been priced into the pound. The UK construction PMI report fell to 45 from 45.3 in July.
USD/CAD has pushed higher and it hit a level last seen in mid-June. The drop in the oil market has hit the Canadian dollar, and the contraction in Canadian manufacturing sector helped the currency pair too. The manufacturing PMI reading for Canada was 49.1, a dip from the 50.2 in July. The poor US ISM manufacturing reading has prompted the market to pull back a bit.
Commodities
Gold has reaped the benefits of the turnaround in the US dollar, and the sell-off in stocks. It is a double victory for the metal. A mixture of the flight-to effect, and the inverse relationship with the US dollar has boosted the commodity, and if the bullish move continues it might target $1,555.
WTI and Brent crude have incurred heavy losses today OPEC lifted output for the first time since the production cuts were announced in 2019. Dealers are also worried about the state of the global economy, and what that will do for energy demand.
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