Hawkish chatter and a slightly stronger US dollar from some Fed policymakers has seen European markets slip back a touch, while a report that the ECB has had discussions about a tapering program have delivered a slightly softer tone to proceedings this morning, with the DAX and the CAC40 both sliding back after yesterday’s strong gains.
Gold prices have also slid sharply on the back of this speculation of a possible tighter monetary policy, touching levels last seen in June, before the UK’s Brexit vote.
The FTSE100 has also slipped back a touch despite the pound touching a new 31 year low below 1.2700, and a five year low against the euro. This move lower does appear to have prompted some light sterling buying, however there is a risk we could see further declines towards 1.2500.
On the companies front UK supermarket giant Tesco's (LON:TSCO) shares have popped higher after seeing operating profits climb to £596m, above market expectations. Given this year’s share price performance there does appear to be some evidence that new CEO Dave Lewis is finally putting the company’s woes behind it. There are clouds namely; the rise in the pension deficit as a result of the slide in gilt yields and this will need to be dealt with.
Tesco’s sector peers Sainsbury and Morrisons are also higher as a result of the positive trickle-down effect.
This talk of the potential for slightly tighter policy has helped underpin some of the banking stocks with Barclays (LON:BARC) share price up a touch, along with the broader European banking sector.
On the downside gold miners have come under pressure as a result of the weakness in gold and silver prices, with Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) both lower.
The latest UK services PMI for September showed a slight moderation from the 52.9 seen in August, coming in at 52.6, though it was still above expectations.
Looking ahead to the US open last night’s hawkish chatter has taken some of the shine of US markets ahead of the latest ADP employment report, which is due later today along with the latest US services data for September. While the ADP report is an important indicator it has been incredibly unreliable as being any sort of bellwether to its bigger brother, being remarkably stable in and around the 175k level for the last 4 months, though we are expected to see it slip back slightly to 166k for September.
The ISM non-manufacturing report will be important as well given that it makes up about 70% of the US economy and the employment components have been a touch softer in recent months. Expectations are for a reading of 51.9, unchanged from August.
The Dow Jones is expected to open 4 points lower at 18,164
The S&P500 is expected to open unchanged at 2,150
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