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Caution reigns as European stocks slide, DAX at one month low

Rising prices weighing on risk

It’s been a uniformly negative day for European stocks, as concerns over slowing economic activity weigh on sentiment against a backdrop of rising prices, wages and chatter that central banks are looking at paring back the amount of stimulus in the weeks and months ahead


Tomorrow’s European Central Bank rate meeting could well be an interesting affair given comments released earlier today from Austrian governing council member Robert Holzmann who warned that the central bank might normalise policy sooner than markets expect.

The timing is especially curious given that normally there is a blackout period of about a week before important policy decisions. I’m guessing that he didn’t get that memo on that one.

Surging energy prices are helping to underpin the likes of Royal Dutch Shell and BP, with US natural gas prices trading up at seven-year highs in New York, and oil prices rebounding after three days of losses.

This outperformance in energy stocks is helping to pull the FTSE100 off its lows of the day, while the DAX has hit its lowest levels in over a month.

Smiths Group is also doing well after the company announced that it had secured better terms for the sale of Smiths Medical division, withdrawing its recommendation to support the TA Associates bid, and recommending a sale to US based ICU Medical for $2.7bn plus an additional $100m contingent on the share price performance of the enlarged ICU business.

The deal is expected to close in the first half of 2022, with Smiths owning 10% of ICU Medical on completion. The company also said it would return $737m to shareholders by way of a share buyback.

It’s also been a good day for B&M European Value Retail after the company said it expected to see better than expected H1 earnings of £275m to £285m due to an improvement in gross margins, and up from its previous guidance of £235m. 

Carrying on the retail theme Dunelm has also had a good day, jumping over 10% to 2-month highs, in stark contrast to its Q4 update back in July, when the company reported that total Q4 sales rose by 101.7% year on year to £380.1m, and the shares barely reacted.

Today’s full year numbers have been greeted much more enthusiastically with total sales up 26.3%, to £1.34bn, while gross margins increased to 51.6%.

Full year profits came in at £157.8m, a rise of 44.6% with the company saying that while it was having to absorb higher costs due to supply chain disruptions it was well placed to deliver higher profits ahead of expectations for the next fiscal year FY22. 

The company announced a final dividend of 23p per share, taking the final dividend to 35p, with the added cherry on the top of a special a dividend of 65p per share, to make up for the fact that no dividend was paid in 2020. That may well have had something to do with today’s share price reaction!

It’s auction time for Morrisons with the company announcing that the bidding process will now go to auction in the absence of final bids from Fortress and CD&R with the current bid by CD&R the frontrunner currently favoured by the board.

The current offer is still set to go to a vote in October in the absence of another bid from Fortress, assuming they don’t pull out of the process in the interim. Tomorrow Morrisons is updating shareholders on its trading performance for the first half of this year, which should give us a peak under the bonnet of the actual business itself.

While most of the talk has been of the value of its assets and low debt levels, there is also a decent business underneath, albeit in a competitive market, with the UK’s 4th largest supermarket squeezed between the likes of Tesco and Sainsbury and the young upstarts of Aldi and Lidl.  

UK housebuilders are the worst performers with Taylor Wimpey, Persimmon and Barratt Developments all lower.


Despite another record high for the Nasdaq yesterday US markets opened lower, taking their cues from today’s weaker European session, as nervousness grows about elevated valuations.

Following on from Goldman Sachs at the weekend, we’ve also seen Morgan Stanley and Citigroup start to turn negative on the outlook for US equities.

On the data front the latest July JOLTs numbers showed the US economy had almost 11m vacancies, a big increase from June’s 10.2m, and this despite a July payrolls report that showed over 1m new jobs were added during the month. This growing mismatch raises the risk of further possible upward pressure in prices, and wages especially.

Tesla shares are slightly higher after the company announced that China shipments of its cars jumped by 34.3% in August to 44,624.

Coinbase shares have slipped back after the company announced that the SEC had informed them that they could face enforcement proceedings over a new lending product that they had been planning to launch. CEO Brian Armstrong hit back accusing the SEC of “sketchy behaviour”, after the regulator issued a Wells notice.

Netflix shares hit a record high yesterday as optimism over its upcoming content slate, prompts investors to become more bullish on the stock. As a big winner from the pandemic, concern over the business losing ground over the reopening trade has largely dissipated, despite the slowdown in user growth, as optimism over its move into gaming also grows.

Citrix Systems is also higher on reports that Elliott Investment has taken a $1bn or 10% stake in the business. 

GameStop is set to report its latest numbers after the bell.    


The US dollar has continued to make gains today, with the euro under pressure ahead of tomorrow’s ECB rate decision. There’ s been plenty of noise in the past few days from the hawks on the governing council, about the prospect of reining back on the central bank’s asset purchase program, however this is likely to be more bark than bite. The last thing the EU needs is a higher euro or yields and yields in Europe have been rising these past few days, with Italian 10-year yields at 2-month highs.

There were no surprises from the Bank of Canada, leaving rates unchanged and maintaining the weekly bond purchases at C$2bn a week, a neutral decision given the proximity of the upcoming election on September 20th


The continued slow return to production in the Gulf of Mexico in the aftermath of Hurricane Ida is helping to keep a floor under oil prices in the short term, as prices rebound after three days of losses.

Natural Gas prices have surged in early US trading pushing through their 2018 highs and hitting seven-year highs, and their highest levels since April 2014.

Despite the negative tone, gold prices are also in retreat, beholden to a stronger US dollar, with weakness across the board in metals prices, with palladium and platinum prices also under pressure. 


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