Europe
It’s been a positive week for equity markets in Europe, but investors appear to be enduring the equivalent of a post Fed hangover, as continued weakness in oil prices, as well as concerns about the Chinese economy have served to pull markets off their highs and close lower for the first time since Monday.
According to a survey of economic conditions in China, carried out by a US based independent body, modelled on the US Beige Book, the overall picture showed that the Chinese economy deteriorated in the fourth quarter. The survey pointed to "pervasive weakness" across the board raising concerns about the effectiveness of recent attempts to stimulate a recovery in the world's second biggest economy.
Mining stocks managed to catch a bid early on with Anglo American (L:AAL) rebounding from its recent all-time lows, but with commodity prices likely to remain under pressure, volatility here is likely to continue, inducing significant price swings in the process, but the recovery in miners has been helped somewhat by a rebound in copper prices which are finding support just above $2, a level which has managed to contain the downside for the past two months.
Also edging higher Royal Dutch Shell (L:RDSa) is outperforming despite weaker oil prices, while Barclays (L:BARC) also caught a bid on reports that DBS and Julius Baer might be interested in the banks Asia private wealth management unit.
On the downside technology stocks have come under pressure with chipmaker ARM Holdings (L:ARM) sliding back on concerns about weak shipment volumes on Apple (O:AAPL) iPhones. A recent announcement from one of Apple’s suppliers in the US has raised concerns that the latest quarter could well be hit by declining phone sales for Apple as we head towards Christmas. ARM Holdings is one of the main suppliers of chipsets for the iPhone.
US
US markets continued from where they left off last night opening lower as investors tried to make sense of the sharp change in sentiment from where we were at the beginning of the week. After rallying strongly in the first three days of the week as well as after the Fed decision, yesterday’s sell-off was a sharp reminder of how fickle markets can be and for all the relief of the Fed finally pulling the trigger on rates, the reality is not much else has changed.
Commodity prices still remain weak, the US Dollar is still strong and the pressure on earnings looks set to continue. With volumes drying up into year-end it is going to be extraordinarily difficult to get a gauge of where we go to next, as investors look to draw a line under a disappointing 2015 for US equities and gear up for 2016 at a time when liquidity starts to become a lot scarcer.
On the earnings front Olive Garden owner Darden Restaurants Inc (N:DRI) reported that Q2 numbers came in ahead of expectations, allowing the business to raise its guidance as well as the quarterly dividend.
FX
The Japanese yen has been the biggest riser today after the Bank of Japan bemused the markets by altering its existing easing program, but by such a modest amount, that it had investors questioning why then even bothered.
The worst performer has been the Canadian dollar after the latest inflation numbers showed that core prices fell into negative territory in November, as falling oil prices continue to weigh on the currency, as it trades as its lowest level against the US dollar since 2004.
Commodities
Crude oil prices have remained under pressure today as a rising supply glut and a firmer US dollar continue to weigh on prices. Trading at six year lows each attempt to rebound is shallower than the previous one, with some suggesting that we could well see further declines towards $30 a barrel in the short to medium term. The decision by US politicians to repeal an export ban is on the face of it a welcome move but it will ultimately do nothing to help underpin prices in a market awash with oil.
Demand for oil and natural gas isn’t being helped by the unseasonal warm weather being experienced not only in the US but also in Europe and the UK.
Copper prices have found some support today on reports that Chinese copper smelters are meeting on Saturday with a view trying to put a floor under prices. While this seems unlikely today’s rebound is unlikely to reverse a negative week for the red metal.
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