Europe
This week’s price action appears to be turning into a reversal from the price action of last week as European markets look set to close lower for the third day in succession.
This morning’s Chinese inflation data wasn’t too far away from expectations but the fact that it continues to remain weak with factory gate prices still well into negative territory where they have been for the last 43 months suggests that the overcapacity which is keeping a lid on commodity prices still has some way to run in global markets.
On the plus side Hargreaves Lansdown (L:HRGV) has shot higher after announcing an increase in new clients and an 11% increase in revenues to £78.5m. The downside to today's numbers was that assets under management slid 1% but given the volatility seen over the past few months perhaps that's not too surprising.
With precious metals continuing to edge higher Randgold Resources (L:RRS) and Fresnillo (L:FRES) are getting a fair wind from gold prices hitting their highest levels since early July, which in turn has helped boost Glencore (L:GLEN) and Antofagasta (L:ANTO), which have been helped by a rebound in copper prices.
Yesterday the housebuilding sector saw a solidly strong day after of a positive earnings update from Bellway (L:BWY) Homes which saw a 44% rise in profits. Today we’ve seen some of these gains given back with Taylor Wimpey (L:TW), Barratt Developments (L:BDEV) and Persimmon (L:PSN) all lower.
US
US markets have remained under pressure today as investors digested another disappointing European session and concern over weakness in bio-techs and disappointing earnings numbers start to weigh on sentiment.
Disappointment over last night’s JPMorgan (L:JPMJ) numbers appear to have translated into some softness in the share price today, though this hasn’t translated into results for Bank of America (N:BAC) Merrill, which showed a return to profit in Q3. While the numbers beat on the top line at $0.37c a share, revenues came in short at $20.9bn, down 2.4% from a year ago, but there were encouraging signs in the form of an increase in mortgage lending.
As one of the US’s biggest mortgage providers Wells Fargo & Company (N:WFC)’s Q3 numbers are especially important in the context of the US housing market. These came in marginally better than expected at $1.05c a share with revenues also slightly above expectations at $21.9bn.
On the data front September retail sales came in at -0.3% excluding auto sales missing expectations, as well as seeing August revised lower to -0.1%, from a 0.1% rise, raising further concern about the confidence of the US consumer, as they consistently refuse to open their wallets.
Headline factory gate prices in September also remained weak coming in at -0.5% on the month and -1.1% year on year, further reinforcing the deflationary winds blowing through the US economy.
Given that there is normally a lag on the CPI numbers we can probably expect further downward pressure on prices as we head towards year end making it doubly difficult for the US Fed to consider raising rates as we head towards year end. For those focussing on core prices, even excluding energy and food prices only rose 0.8%, down from the 1.2% rise expected.
One thing that has become apparent in the last couple of months has been a significant slowdown in the US manufacturing sector as the decline in Oil prices now appears to be resulting in shutdowns and layoffs in the oil and gas sector. The effects of this could start to manifest itself in this evening’s Beige Book survey which despite these concerns was fairly upbeat on the 2nd September.
FX
The pound has had a fairly good day in contrast to yesterday’s declines after unemployment fell back further to 5.4% in the three months to August, its lowest level since mid 2008.
The single month rate for August was even lower at 5.3%, while the number of people in employment came in at a record high level of 73.6m people. Average weekly earnings including bonuses also increased, albeit by less than expected, gaining 3% in the three months to August, in so doing maintaining the balance between weak price pressures which could delay a rate rise, and strong wage growth which could still prompt an earlier move by the MPC.
The New Zealand dollar has also had a good day after RBNZ Governor Graeme Wheeler said that further easing would depend on any further deterioration in economic data. Given that recent data has been fairly positive, traders have perceived that further policy easing could be some way off.
The US Dollar has been the worst performer, not surprising given that this afternoon’s weak US data raises expectations that the Fed may well remain on hold for longer.
Commodities
Gold prices have continued their recent rise hitting their highest levels since early July as speculation rises that we could well see further stimulus from China and a possible delay to the prospect of a rate rise out of the US this year, as divisions amongst Fed policymakers start to break out into the open. They have run into some technical resistance at the 200 day MA.
Crude oil prices have remained under pressure after yesterday’s sharp gyrations, trading at their lowest levels in a week as concerns about slowing demand and supply surpluses continue to cap any upside pressure.
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