The major equity benchmarks in Europe are largely flat on the session as traders await the update from the US Federal Reserve.

The US central bank will announce its interest rate decision at 7pm (UK time) and the press conference will begin at 7.30pm (UK time). Rates are expected to remain on hold, and there has been a lot of speculation that Jerome Powell, the Fed chair, will hammer home the point that rates will stay ultra-low for years to come. The US central bank is expected to maintain an extremely loose monetary policy in an effort to assist the economic recovery, anything less than that in terms of promises, could spark a bearish move. The pandemic hasn’t been forgotten about, but for now the Fed is in focus. Fears of another wave of Covid-19 are doing the rounds.  

Next shares hit a four-month high on the back of its second quarter update. Full price sales in the second quarter tumbled by 28%, but that was better than equity analysts’ expectations. The sharp fall in sales was better than the best case scenario that the group mapped out three months ago. The fashion house’s outlook is now a lot more upbeat than it was during the depths of the lockdown. The online and warehouse division is back to normal capacity, and all its stores in the UK and Ireland are now open. Next have clearly turned a corner in terms of trading. The latest retail sales reports from the UK points to pent-up demand, but dealers are already wondering when consumers’ appetite will settle down again. 

Aston Martin shares are higher on the back of hopes that demand is recovering in China. In June, the company registered an 11% rise in retail sales in China. Total retail sales in the first half fell by 41%. Traders have taken the view that China left the lockdown first, so other countries will probably experience some sort of a rebound in sales in the months ahead. The group’s first half numbers were poor as the operating loss was £145.5 million, and that was a big rise from last year’s first half loss of £36.4 million. The group has undergone several rounds of financing in the past year and there has been a shake-up in senior management too. Ken Gregor started as CFO last month, and Tobias Moers will start as CEO next month.

Taylor Wimpey shares have fallen to a three month low after the firm announced that house completions will be down 40% on the year. The pandemic ground construction sites to a halt, so that has impacted the annual output. The first half revenue dropped by 56% to £754.6 million and the pre-tax loss was £39.8 million. Dealers focused on the completion forecast, but the order book stands at 11,686, which is up 15% on the year.

Smurfit Kappa, the packing group, confirmed that sustained demand in online shopping has been good for business. The group said the performance in July was not too far away from ‘incredibly strong’. Volumes from the industrial side of the business in July have been stronger than expected. Smurfit declared an interim dividend of 80.9 cents, and that was on par with the final dividend that was pulled amid the health crisis. A minority of companies are reinstating their dividends, hence why Smurfit shares are up today. 

US

Dealers are cautiously optimistic about Republicans and Democrats reaching an agreement in relation to the $1 trillion stimulus package. When it comes to these sorts of situations, political fighting is to be expected, as both sides will want to get one over on the other, but the wider view is that an agreement will be achieved in the end. In addition to that, the Fed is expected to deliver an update that is very supportive of the economy.

Starbucks shares are higher on the back of the third quarter update from last night. Revenue for the three month period slumped by 38% to $4.22 billion, but that topped the $4.07 billion forecast. The loss per share was 46 cents, while equity analysts were expecting a loss of 59 cents. The health emergency has had a terrible impact on the business as same store sales dropped by 40%. The outlook for the fourth quarter was well received as EPS is tipped to be between 18 cents and 33 cents, while the previous guidance was 15-40 cents.  

The CMC Big Tech share basket is in focus today as the CEOs of Amazon, Apple, Facebook and Alphabet – Google’s parent – will testify before Congress. The captains of the tech sector will come under scrutiny from US politicians as there is a feeling in wider society that a handful of tech firms have a disproportionally large amount of market share in terms of business.   

Advanced Micro Devices issued a bullish forecast last night, and that’s helping the stock today. The company now expects full year revenue growth to be 32%, which was a sizeable increase on the 25% growth forecast that was issued in April. The company’s second quarter figures were mixed. EPS was 13 cents, which missed the 16 cents consensus estimate. Revenue dropped by 26% to $1.93 billion, and that exceeded forecasts. 

FX

The dollar index had fallen to a fresh two year low as dealers are dumping the dollar ahead of the Fed update. The US central bank is expected to keep rates on hold but in addition to that, it is tipped to confirm that rates will remain close to zero for a number of years. In March, the dollar hit a three year high, and it has moved aggressively lower in the past few weeks. The weak greenback is likely to help the US economy recover, but it could bring about an inflation problem down the line. The Fed’s comments about inflation this evening will be interesting in the context of the weaker dollar. 

EUR/USD has been pushed up on account of the continued weakness in the US dollar. German import prices in June on a monthly basis were 0.6%, and that topped the 0.5% forecast. The reading was an improvement on the 0.3% posted in May.

GBP/USD hit its highest level since early June due to the fall in the greenback. The BoE consumer credit report for last month showed that people paid down £86 million of debt, but economists were expecting £2 billion to have been repaid. UK mortgage lending last month was £1.9 billion, and that was a jump on the £1.2 billion posted in May.        

Commodities

Traders have booked their profit on gold ahead of the Fed meeting. Yesterday, the asset hit a new all-time high, but it seems the bulls have decided to square up their positions in advance of the interest rate decision from the US central bank. Part of the reason for gold’s bullish run has been the low government bond yields and the tumble in the dollar – both have been influenced by the perceptions about what the Fed will do next or at least its guidance.    

WTI and Brent crude are now up on the day in the wake of the EIA report. US oil stockpiles tumbled by 10.6 million barrels, while traders were expecting a build of 500,000 barrels. The massive fall in inventories implies that demand is high, and that helped the oil market. 

 


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