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Stock markets in Europe continue to be volatile. 

Europe

Stock markets in Europe continue to be volatile. 

The morning session saw a large move to the downside, but we have seen some markets recover. Late last night, Apple reduced their first-quarter revenue forecast due to weaker sales in China. In the early hours of Wednesday morning, China posted disappointing manufacturing figures, so for the past two sessions investors have been worried about a slowdown in the Chinese economy. This afternoon, the FTSE 100 was showing a small gain as energy and retailer stocks helped the market swing back into positive territory, but the British benchmark has turned negative again due to the aggressive move lower in US markets.  

Next’s shares rallied today after the company lowered its full-year profit guidance, but the forecast wasn’t as bad as traders expected. The fashion house blamed higher cost related to online sales and lower margins on beauty products for the lowering of the profit forecast. The high street took a hammering as in-store sales dropped by 9.2% ,but online sales jumped by 15% ,and online sales now account for the bulk of group revenue. It is encouraging to see the firm is embracing the changes in the sector. The stock has been in decline since July, but if it holds above the 4,000p mark, it might retest the 5,000p area.

Burberry shares are lower on the back of the Apple announcement, as investors are fearful the Chinese middle class might lose their appetite for Western luxury brands.

Ryanair declared that December traffic figures grew by 12% to 10.3 million, and the load factor was 95%. The stock is lower today, and if the wider downtrend continues a break below 1,000p, might bring 945p into sight.

Wizz Air posted a 22.7% jump in December passenger numbers to 2.7 million, and the load factor improved to 88.8% from 87.5%. The share price has been edging higher since October and if the positive move continues it might target the 3,140p region.

US

The Dow Jones, S&P 500 and NASDAQ 100 are all in the red as dealers are worried about the state of the global economy. The announcement from Apple last night was the latest snippet of information which suggested that China’s economy is cooling, and the global ramifications are potentially huge. 

Apple’s previous first-quarter revenue forecast was between $89 billion and $93 billion, and now it has been lowered to $84 billion. The tech firm also trimmed first gross margin expectations to approximately 38%, down from between 38-38.5%. The stock is down over 8%. 

We saw mixed jobs data from the US. The ADP private employment report was 271,000, which easily topped the 178,000 forecast that economists were expecting. The November report was revised lower to 157,000 from 179,000. Today’s report was the highest reading since early 2016. On the other hand, the jobless rate ticked up to 231,000, ahead of the 220,000 expected by economists. Tomorrow investors will be focusing on the non-farm payrolls report, and in particular the average earnings component. Dealers will be viewing the numbers through the eyes of Federal Reserve members, and trying to ascertain what the central bank’s next move will be.  

The ISM manufacturing report for December was 54.1, which was a major drop from 59.3 in November, and well below the 57.7 that dealers were expecting.

FX

GBP/USD was caught up in the ‘flash crash’ on the currency markets last night. The pound is still in the red against the US dollar, but it has been moving higher through the day. The latest UK construction PMI reading was 52.8 – a three month low, economists were expecting 52.9.

EUR/USD is higher on the back of the softer US dollar. The greenback enjoyed a major rally yesterday as traders sought out a safe haven currency in light of the woes in the Italian banking sector, and today we are seeing a reversal of that.

Commodities

Gold has risen to yet another new six month high, and the dip in the greenback has helped the metal. For much of the past 12 months, there has been a strong inverse relationship between the greenback and gold, and now that investors are less fearful about the prospect of tighter monetary policy from the US central bank, we might see the metal continue to rally.

Oil is higher today on reports that Saudi Arabia will trimming exports. It was reported that Libyan production will be lower due to looting, and that is propping up the price too.   

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