Europe
Stocks are firmly in the red as rising Italian government bond yields, a slide in emerging market currencies, and continued uncertainty about US-China trade tensions have weighed on markets. Those topics have been bubbling away in the background, and now they are at the forefront of dealers’ minds.
Hays (LON:HAYS) had a strong year as fees increased by 12% to £1.07 billion, and operating profit jumped by 15% to £243.4 million, topping the consensus estimate of £240.9 million. The recruitment company upped both the core dividend and the special dividend by 18%. Hays confirmed the UK market is ‘uncertain, but stable’, while the rest of the world division saw a 51% rise in profit growth. The group has £30 million lined up for capital expenditure, and it plans to spend the funds in fast growing regions. The stock has been pushing higher for over two years, and if the bullish move continues it could target the 210p region.
WH Smith (LON:SMWH) shares are in demand after the company confirmed it is on track to achieve its full-year target. The group said that margin improvements has helped with earnings. The new store opening plans in the UK and abroad are in line with forecasts, and the firm will still invest in new store formats. The share price has been pushing higher recently and if the June high of 2,138p is cleared, it could pave the way for 2,200p to be tested.
Smurfit Kappa (LON:SKG) revealed that the Venezuelan government has seized control of one of its plants, and two of its managers were arrested. The government in the struggling country claims the packing firm engaged in smuggling, price speculation and refusing to sell to domestic companies. Smurfit Kappa denies any wrong-doing, and confirmed it is doing all it can to obtain the release of its employees. The stock has been pushing higher since June and it reached an all-time high earlier this month, and if the wider bullish trend continues it could retest the 3,300p area.
Vodafone (LON:VOD)’s Australian business, Vodafone Hutchison, is to merge with TPG Telecom, and the new entity will challenge the two dominant players in Australia, Optus and Telstra. The merger is a good fit as Vodafone Hutchison has a well-established mobile network and TPG has a solid broadband business. The new group should trigger competition in the market and challenge the old guard.
US
Equities are a little lower in New York, and in keeping with the recent trend they are holding up far better than their European equivalents. Hopes are still high for a trade deal between the US and Canada in the near-term. US stocks are being helped also by the relative strength of the domestic economy – which is paving the way for Western countries. For equity traders around the world, the indices are acting like a safe haven given the recent records achieved on the S&P 500 and NASDAQ. Amazon’s spectacular run continues as the stock hit the $2,000 mark, and the historic price move comes one day after Morgan Stanley (NYSE:MS) slapped a $2,500 price target on the stock.
Core Personal Consumption Expenditure (PCE) on an annual basis ticked up to 2% in July, meeting expectations. PCE is the Federal Reserve’s preferred measure of inflation, and today’s report points to firmer demand. Traders didn’t get overly excited by the numbers as it has been bouncing between 1.9% and 2% for a number of months. A spike above 2% could spark interest in the US dollar.
FX
The US dollar index ticked up, partially because of the weakness in other major currencies, but the core PCE report was a nice bonus too. The greenback had a stellar run in early August, but traders are questioning how hawkish the Fed will be next year. Emerging market currencies are coming under pressure and that is helping the US dollar too.
EUR/USD has been dented by the rebound in the greenback. Germany produced mixed economic indicators, as the unemployment rate held steady at 5.2%, meeting economists’ expectations. Germany’s EU-harmonised inflation rate dipped to 1.9% in August, from 2.1% in July. The cost of living report didn’t do the single currency any favours.
GBP/USD has given back a small bit of yesterday’s surge. The dust has settled after Michel Barnier’s comments yesterday that he would be prepared to give the UK a deal that no other country has been offered. Today it was reported that President Macron will encourage the EU to broker an agreement with the UK. While the prospects of a ‘no-deal Brexit’ remain low, the pound’s prospects are likely to be positive.
Commodities
Gold has been hurt by the move higher in the greenback. The metal enjoyed a rally in the middle of the month when the greenback dipped, and now that situation has turning around. The commodity traded back below $1,200, and traders will be monitoring the situation as that is an important level from a psychological point of view.
Oil has rallied again on the back of yesterday’s Energy Information Administration report which showed a fall in both oil and gasoline stockpiles. The International Energy Agency warned that output could taper off towards the back of the year as sanctions are on the horizon for Iran, and the crisis in Venezuela might impact supplies in the months to come.
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