UK & Europe
UK and European stocks gained ground for the first time in three days on Wednesday. The FTSE 100 reached over 6340 before paring gains. The German DAX reclaimed 11,170 to make a new three month high.
The big stock market winners from the UK Autumn statement and spending review have been house builders with challenger banks the big losers.
A fresh government drive to build more houses helped shares of house builders including Persimmon (L:PSN), Barratt Developments (L:BDEV) and Taylor Wimpey (L:TW) rose to the top of the FTSE 100. Housing shares remained on the top of the FTSE but came off the boil slightly on the news of an increase in stamp duty on second homes and for buy-to-let properties
It seems the tone of the Autumn Statement was aimed at being populist. The only mention banks got was at the start where Chancellor George Osborne said the conservative government would bring balanced growth, not one built on an ‘irresponsible banking boom.’
So-called ‘challenger’ banks listed on the FTSE 250 including Aldermore (L:ALD) and Onesavings bank were hammered down double digits at the end of the chancellor’s speech after no mention was made of changing the bank profits tax. Shares came off their lows of the day but with the minimum threshold for the bank tax unchanged, the feeling is that the challenger banks will get unduly penalised.
Outsourcers Capita (L:CPI) and Serco (L:SRP) were perceived beneficiaries of an increase in government contracts in government sectors that will experience cutbacks. Both companies’ shares rose by over 2.5%.
Stocks rose across Europe as geopolitical fears subsided, helped by the reported rescue of one of the Russian pilots who ejected from his shot-down warplane over Syria. Had both pilots survived then perhaps Russian president Vladimir Putin would have been under less pressure to sever economic ties with Turkey. Russia has cut a direct military link with Turkey, a Russian regulator is banning poultry meat from one Turkish importer and one of Russia’s largest tour operators has suspended holidays to Turkey. Hopefully that’s as bad as it gets and a trade war can be avoided. A more significant development for markets could be Russia’s Gazprom (MCX:GAZP) switching off gas supplies to Ukraine as of 7am GMT on Wednesday.
The recovery in European stocks has been helped by reports that the ECB is discussing two-tiered bank charges as another measure to encourage lending in the Eurozone. Banks already pay interest to hold money on deposit at the ECB but under a two-tiered system, banks holding more would be charged a higher rate. The idea is that banks would loan out enough money to take them down to the first tier of interest, thus adding credit into the economy and hopefully stimulating growth. Of course if demand is not there for credit in the first place then it makes no difference.
Shares of Thomas Cook Group (L:TCG) rose double digits after the travel company surpassed earnings estimates, reaching its first full-year profit in five years. Thomas Cook has quashed fears that the company’s mishandling of the fatal accident involving holiday makers at its resort in Corfu in 2006 would dampen customer demand for its holidays.
FX
The dollar was broadly stronger on Wednesday after durable goods orders rose by more than expected in October. The pound was flat against the dollar and up against the euro after what might be argued to be a less austere than expected autumn statement.
Commodities
The whole commodity complex including gold, silver and oil at one point undid all of yesterday’s gains but came off the lows to end slightly lower. Relations between Russian and Turkey look like getting worse before they get better but the precautionary flight to safety seen yesterday was unwound since there has been no military escalation.
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