Europe
Better than expected German PMI data as well as positive sentiment from the US helped give European shares a lift today as investors await any developments in ECB policy from President Mario Draghi’s speech at Jackson Hole late tomorrow.
Germany’s composite PMI of manufacturing and services fell from the previous month but beat expectations while France’s composite improved to 50 with an improving service sector outweighing further lost ground in manufacturing. Germany has had 16 months of expansion above the 50 level in its PMIs which contrasts rather starkly with a second quarter GDP contraction.
Having made up more ground in the recent recovery in stock markets, the FTSE 100 was lagging European indices including the German DAX after a weaker UK retail sales report.
There had been some hope that the weakness seen in May and June was a temporary blip for UK consumers but the weakness is persisting into July with only 0.1% growth in the month. Employment is rising but stagnating wages against a backdrop of modest inflation means confidence in future spending ability is being hampered by a short-term squeeze in the cost of living.
Commodity stocks were weak in the FTSE 100 today reflecting weakness in the underlying commodities after a more hawkish Federal Reserve made non yielding assets less attractive. The weak data in China held down miners Fresnillo and Rio Tinto while the huge price drop in gold meant Randgold was a big faller and oil companies Royal Dutch Shell (LONDON:RDSa) and Tullow Oil Plc (LONDON:TLW) were hurt by the continuing collapse in Crude Oil prices.
US
The S&P 500 made new highs after strong housing and sentiment data but pulled back shortly afterwards largely because of investor hesitation ahead of the Jackson Hole symposium the Dow 30 having just recovered 17,000.
Jobless claims again dipped below 300k to 298k last week in another sign that slack in the labour market is being reduced. Should the non-farm payroll print another 200k plus number next month, the idea that the labour market still has weakness is going to get harder to explain by those wishing to hold down rates in the FOMC.
The Philadelphia Fed Manufacturing index continued its expansion to 28.0 in July while Existing Home sales tracked the rise in building permits to suggest the US housing market is regaining some strength.
Hewlett-Packard Company (NYSE:HPQ) earned 89c per share in its third quarter in line with estimates but beat on revenue after another quarter of strong PC and hardware sales. CEO Meg Whitman called it a recovery in a declining market and said the company has work to do to make sure the software business grows.
FX
After making headway recently following more hawkish noises from the Fed, the US dollar was mostly lower to flat today against major currencies ahead of Janet Yellen’s speech at Jackson Hole.
The euro was stronger across the board while the pound mostly fell. EUR/GBP was trading higher with stronger Eurozone PMIs contrasting with another drop in retail sales in the UK.
The Norwegian Krone was the standout FX performer today with EUR/NOK making a 2 month low after better than expected GDP data from Norway.
Commodities
More hawkish than expected minutes from the Fed last night prompted a rally in the US dollar and a fall back in commodities. Gold acts as a hedge against inflation but if that inflation is going to be counteracted by the Fed then the need for gold is reduced.
Apart from a brief spell starting at the end of May, $1,280 per oz has been acting as support for gold having tested the level 8 times since March. Should the level break it could be meaningful for the future direction of the precious metal.
Oil prices were weak again today, the reduction in US inventories meant Brent was weaker than WTI but Brent could well find $100 per barrel a sticking point if prices were to fall further.
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