Europe
Stocks in Europe were ready to mimic the reversal of losses seen in the US yesterday but some of the bullishness was sucked out of the market when Russia retaliated with its own set of sanctions with a ban on food imports from certain regions notably the EU and US for one year.
Coca-Cola (NYSE:CCE) was a big faller on the day citing deteriorating conditions in Russia in what is probably going to be an increasing theme after Russia responded with its own sanctions.
The FTSE 100 moved between gains and losses after mixed earnings. The index saw a strong reversal from just below 6,600 yesterday but failed to follow through today. The miners were leading the index on strong earnings from Rio Tinto (LONDON:RIO) while insurers acted as a drag after weak results from Old Mutual (LONDON:OML) but decent numbers from Aviva (LONDON:AV).
Rio Tinto has reported strong H1 earnings. The mining company reported 21% earnings growth to $5.1bn. The company has been cutting costs and reducing assets which are also helping the company cut its debt levels. This is good news for shareholders who are likely to receive an increased dividend from the proceeds. The trouble may come going forward with lower investment in future growth possibly reducing future earnings.
The Bank of England kept interest rates unchanged and issued no statement. More details will come on whether there was any dissent in the meeting when minutes are released in two weeks. The bank’s rational for its policy stance will become more clear at next weeks’ inflation report.
The ECB kept rates unchanged including the negative deposit rate. Mario Draghi in his ECB press conference largely left some of the bigger questions of the day unanswered; namely the systemic threat of Banco Espirito Santo (LISBON:BES) and the economic impact of geopolitics especially Ukraine.
The euro had edged lower by the end of the press conference mainly over the prospect of continued loose monetary policy exemplified by a consultant hired for the purpose of examining ABS purchases.
US
US stocks likely benefited from flows out of Europe in early trading as Russian sanctions and deteriorating EZ economic numbers make the US a much better prospect as demonstrated by today’s strong weekly jobless claims.
Jobless claims dropped to 289,000 last week against estimates of 305,000 with the four-week average hitting its lowest since February 2006.
Russia introduced its first significant retaliatory sanctions against the US and Europe and major commonwealth countries. So far US markets are brushing off Russian sanctions on food imports; the sanctions will hurt some industries particularly poultry but don’t have wider implications.
Some had predicted Russia would not retaliate to US/EU sanctions because it was thought they would hurt the Russian economy more than any others, that has now been proved not to be the case. The troubling thing about these Russian sanctions is that Putin is fighting back, and his best weapon is Russia’s energy exports. The US does not rely on Russian energy but Europe does and the US does a lot of trade with Europe.
Bank of America (NYSE:BAC) is nearing a $17bn settlement with the US justice department over mortgage fraud. Although a massive hit to earnings; the fact that it could have been worse and that this issue has been resolved could see a positive reaction in the stock.
FX
The US dollar was mostly higher today notably against the Australian dollar which lost 80 pips and fell below the long-standing 0.93 support.
The euro ended up following its existing downwards trajectory after the ECB press conference offered no significant change in monetary policy.
EUR/JPY dropped to a new 2014 low briefly yesterday but has held above the level today.
Commodities
Gold and silver were fairly directionless, the Russian sanctions were generally deemed not to demand a flight to safety and the outlook over inflation and the reaction of monetary policy has no additional information.
Oil prices were a little higher as Libya is taking longer than hoped to bring production back to capacity as feuding militias add delays.
Copper was well bid despite a big drop in Chinese stocks; the next directional driver will likely come from Chinese trade data early Friday.
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