Europe
European markets continued the steady grind higher that has characterised the last week and a half with apparent progress being made towards Greece’s bailout deal and the latest PMI data indicating a pickup in the economy.
With the troubles in Greece sidelined for now, continental stock markets look relatively more attractive than those of the UK and US. There is less commodity exposure, a weak currency to support exports and an improving economy as demonstrated by positive service sector released on Wednesday.
Bold steps towards a turnaround at Standard Chartered (LONDON:STAN), well received corporate results as well as a jump in supermarket and mining shares helped fuel a rise in the FTSE 100.
Standard Chartered shares initially fell on the open on the surprise 50% slashing of its dividend. Shares turned around once investors accepted the move as necessary to boost the bank’s capital ahead of stress tests later this year. Cutting jobs and bad loans are necessary for the bank’s turnaround but the bank’s performance under former CEO Peter Sands is evidence that it’s not enough. The dividend cut shows new chief executive Bill Withers is willing to use his honeymoon period to make the tough decisions, even leaving the door open to raising more capital.
Commodities were barely higher but mining stocks went on a tear with BHP Billiton (LONDON:BLT) and Anglo American (LONDON:AAL) gaining as much as 5%. The sector has been heavily sold down so there looks to be an element of short-covering off the back of a broker upgrade and ahead of Rio Tinto PLC (LONDON:RIO)’s Q2 results on Thursday.
Negotiations between Tesco (LONDON:TSCO) bosses and irate dairy farmers coupled with the supermarket maintaining its number one sport in Ireland with its smallest decline in sales for two years according to Kantar data, helped boost shares towards the top of the FTSE.
Shares of the London Stock Exchange Group PLC (LONDON:LSE) and insurer Legal & General Group PLC (LONDON:LGEN) were both higher after better than expected interim results.
US
US markets opened higher on Wednesday as Fed speakers and deteriorating economic data raised hopes of a delay to any hike in interest rates despite shares of Apple opening down again.
Comments from Fed member Powell went some way to offset the hawkish overtures from his fellow central banker Lockhart who had suggested the bar was quite high to stop a rate hike in September. Powell was a lot less committal, tempering talk of stronger first half growth with the ongoing low inflation.
Apple shares (NASDAQ:AAPL) opened 2% lower but quickly started to gain back ground. A renewal of institutional demand for shares at what is perceived as a discount means there’s a good chance Apple shares could get a big short-covering rally in the next day or two.
Any short-term bounce could be limited. The drop in the share price will have shaken out fast-money investors that were late to the Apple party. These investors are now piling into the latest hot stocks like Netflix (NASDAQ:NFLX) that was up by an eye-watering 6% at the open on Wednesday.
ADP unemployment surprisingly dropped to 185K in July, lower than the 215k expected and significantly down on the revised 229K in June.
FX
It was a choppy day for foreign exchange with the US dollar giving up early gains after the release of disappointing unemployment and trade balance data.
The British pound showed strength despite services PMI data slipping more than expected in July ahead of the Bank of England’s first “Super Thursday” when it reports its rate decision, minutes and the inflation report.
A bounce in oil prices and a smaller than expected trade deficit for Canada helped the Canadian dollar recover from decade lows. Having touched 1.32 USD/CAD slid back towards 1.31.
Commodities
Gold has been consolidating around $1,090 with a tightening range since its huge plunge on July 20 that took it to a new five-year low. Traders in the precious metal are awaiting a clue on the timing of the next Fed rate hike from Friday’s US unemployment report.
Crude Oil prices were higher for a second day as the US dollar lost ground and the API said crude inventories fell by 2.4m barrels in the past week.
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