Europe
UK and European shares edged out another day of gains as low inflation on both sides of the channel fed through to weaker currencies in a boost for exporters. Positive sentiment was limited by mixed corporate earnings and falling oil prices which hurt the energy sector.
German factory orders came in well ahead of expectations at 2.0% month-over-month, helping year-over-year orders storm ahead to 7.2% in June from 5.2% in May. The picture that’s starting to emerge is that there are pockets of real economic strength in Europe, particularly in Germany and Spain. When the good data is complimented with ultra-loose monetary policy, it is still a very favourable environment for European equities.
Proceedings in the UK were dominated by the Bank of England’s “Super Thursday” where it reported its rate decision, minutes and the inflation report. In the end, there was a lot more happening at Trent Bridge than Threadneedle Street.
There was no change to interest rates as expected. The decision by known hawk Martin Weale not to vote for a rate hike was a dovish surprise that sent the pound and gilt yields lower. Ian McAfferty was the lone dissenter when some had expected there could have been three. Realistically David Miles voting for a hike would have been a bit of a red herring anyway since it’s his last meeting so it wouldn’t have had much lasting effect.
The inflation report upgraded growth and wages but offset it by downgrading inflation forecasts given the deteriorating outlook for energy prices. The net result is that consensus option remains for a hike in UK rates early next year. There seems to be reluctance from the Bank of England to act before the Fed.
Resource companies made up the top decliners on the FTSE 100 but a handful of well-received updates helped the benchmark to modest gains. Notably Old Mutual PLC (LONDON:OML) saw first half profits and assets under management rise and Immarsat rescheduled its satellite launch to August to the delight of shareholders.
US
US stocks slumped in opening trade with slightly better than expected jobless claims data raising concerns that tomorrow’swidely-watched unemployment report could do the same and set the stage for the Fed to hike rates in September.
The tech sector saw its fair share of volatility with high-flyers Tesla Motors Inc (NASDAQ:TSLA)and Fitbit Inc (NYSE:FIT) both down over 10% after quarterly earnings failed to meet the high expectations of investors. After showing signs of recovery on Wednesday, Apple shares (NASDAQ:AAPL) were back lower on Thursday, while new Street favourite Netflix (NASDAQ:NFLX) cruised to a tidy 3.5% gain within the first hour of trading.
Shares of Cadbury-owner Mondelez International Inc (NASDAQ:MDLZ)gapped higher on news of a $5.5bn stake acquired by activist investor Bill Ackman stoked speculation of a possible merger.
FX
The US Dollar was mostly higher on Thursday after jobless claims came in at a better than expected 270k, remaining close to the lowest level in four decades. The dollar has been showing strength leading into non-farm payrolls which most market participants see staying comfortably above the 200k level the Fed would need to justify a rate hike in September.
The British pound was once of the weakest major currencies after a double body blow of a dovish Bank of England and missed industrial production data. GBP/USD slipped beneath 1.55 before coming off its lows.
Commodities
Crude oil slipped despite a bigger than expected draw in US oil inventories on Wednesday. Oil bulls have completely capitulated with CFTC data showing the lowest net long position amongst fund managers in crude for five years! While there could be a short-term profit-taking bounce, it looks more likely than not that there will be new multi-year lows in Brent and WTI within the next month or two.
Metal prices continue to tread water ahead of tomorrow’s unemployment report.
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