Europe
The German parliament approved the Greek bailout package as expected so it wasn’t enough to prevent a fall in UK and European stocks as fears remain that a slowdown in China and a possible US rate hike will hurt economic growth and corporate profitability.
The Shanghai Composite was particularly volatile on Wednesday, having moved from losses of over 3% to finish up 1.2%. Instability in Asia is effecting emerging market currencies that have already weakened in response to China’s devaluation, which itself is a response to the rise in value of the US dollar ahead of a possible US rate hike this year.
It’s been all downhill for stock markets since China’s currency devaluation last week. Whether the small move down in the value of yuan really translates to any economic difficulty in Europe remains uncertain but there can be no doubt about the damage to investor sentiment.
German parliament backed the Greek rescue deal but it was hardy unanimous with 113 MPs voting against it including 63 from Chancellor Angela Merkel’s own coalition. There has been much talk about the fate of Greek PM Tsipras after the agreement but this vote could be a sign that Ms Merkel’s authority is also in question.
The FTSE 100 has slumped back to lows last seen in early July when Greece was close to exiting the Eurozone. Shares were almost universally red on Wednesday with poor results from Glencore (LONDON:GLEN) smashing shares down over 8% and supermarkets all down in sympathy with the worst Asda sales decline in over a decade. Shares of Admiral Group (LONDON:ADML) topped the benchmark index after a well-received half-year earnings update while house builders Persimmon (LONDON:PSN), Barratt Developments (LONDON:BDEV) and Taylor Wimpey (LONDON:TW) were all top risers.
The German DAX gapped below its 200 day moving average in the first hour of trading following the lead of Chinese stocks. The index then moderately recovered as Chinese markets finished in the green and the German Bundesbank passed the Greek bailout package but hovered close to month lows.
US
US stocks opened lower as volatility in emerging markets weighed on sentiment leading into the release of Federal Reserve minutes. Consumer price inflation held steady in July with just a slightly bigger fall in the headline number over the month due to the rapid fall in oil prices.
Home improvement retailer Lowe’s missed earnings expectations but saw a pickup in revenues and same store sales driven by rising demand for big-ticket items as the US housing market recovers.
Shares of Target Corporation (NYSE:TGT) rose over 4% after beating estimates on the top and bottom line as the turnaround effort started by CEO Brian Cornell a year ago begins to bear fruit.
FX
Outside of emerging markets, currencies were subdued as traders held pat before the release of Fed minutes and US CPI data largely met expectations.
The US Dollar did initially drop since headline CPI slightly missed at 0.1% MoM but quickly regained ground since core prices stayed at 1.8% YoY and average weekly earnings rose more than expected to 2.2% YoY when 1.8% was expected.
Commodities
Gold prices made a one month high while silver erased a good chunk of yesterday’s losses after US inflation data failed to give a definite signal that US rate would rise in September.
Oil prices dropped again after a surprise build of 2.6M barrels in US inventories when a decline was expected. It was the biggest build in four months and demonstrates the resilience of US oil output despite the falling price.
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