- China stock drop again
- Banks lead FTSE 100 afternoon turn
- Dollar gains after US retail sales expand
- Japanese yen higher as stimulus hopes recede
- Gold flat before Fed
UK & Europe
Markets are dragging their feet before the Fed’s decision on rates. Moves in either direction are not getting sustained. Some early weakness in European stocks passed through from China turned to strength by the afternoon thanks to a higher US market open.
German investor confidence saw a surprise rise in August but expectations for the future dropped more than expected in a sign the stock market rout has taken its toll on German investor’s belief in future returns.
Inflation in the UK slipped back to zero in August as expected, driven down by the fall in the price of crude oil. Core price which exclude food and energy also fell to 1.0% growth year-over year. Retail prices rose slightly in part because retailers discounted less than last summer.
The UK’s FTSE 100 dropped as much as 1% in the morning but bounced back above 6,100 by the afternoon. Banking shares helped lead the turnaround with Barclays (LONDON:BARC), Lloyds (LONDON:LLOY) and HSBC all up over 1%, helped in part by news of drastic job cuts at German rival Deutsche Bank (XETRA:DBKGn).
ARM Holdings (LONDON:ARM) built on its recent Apple-fuelled rally after its CFO said its smartphone royalty revenue would more than double by 2020.
B&Q-owner Kingfisher (LONDON:KGF) fell to the bottom of the FTSE after poorly-received first half results. Adjusted sales, which excludes the sale of B&Q’s business in China were lower, hurt by a poor performance in France and a strong pound. There appears to be a consumer shift from DIY to hiring tradesmen and new CEO Veronique Laury is changing the company’s emphasis accordingly by closing B&Q stores and investing in ‘Screwfix’ which sells to building professionals.
US
Economic data released for the US on Tuesday probably didn’t do too much to add to or detract from a Fed rate hike this week. Stocks opened firmer as more or less a reversion to the mean after yesterday’s weakness.
US retail sales expanded again in August with a month-over-month rise of 0.2% vs 0.3% expected, though last month’s figure was revised higher to 0.7%. Sales excluding autos also rose a slightly slower pace than expected of 0.1% while July was revised higher to 0.6%.
Industrial production slowed more than expected by -0.4% in August when a drop of -0.2% was expected.
Empire manufacturing did not show the bounce-back that had been expected and remained languishing at -14.67, almost unchanged from -14.92 last month and well below the -0.75 expected.
FX
The US Dollar was slightly stronger against most major currencies on Tuesday after a mixed retail sales report that included a lower reading for August but a higher revision to the July figure.
Having lost ground for most of last week, there doesn’t seem to be much more willingness to send the dollar any lower before the Fed meeting.
The Japanese yen rose against all major currencies including the dollar after the Bank of Japan failed to announce any further stimulus. BOJ governor Kuroda reiterated his belief that the economy will see higher inflation and growth despite the slowdown in China and other emerging markets. There had been some suggestion that the BOJ could ease at its October meeting but the hawkish comments from Kuroda would imply that’s not too likely now.
Commodities
Crude bounced back from a weak session on Monday leading into the release of API inventory data. The Brent-WTI spread hit an eight month low.
Gold and silver maintained the tight range that been in place for past three trading sessions with gold around $1105 per oz and silver in the vicinity of $14.50.
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