Europe
European stock markets are in the red today as traders book their profits from the rally over the previous three days. The bounce back that started on Monday because of the cooling tensions between the US and North Korea has ran out of steam, and dealers are taking money off the table.
The weakness in the euro cushioned the decline in the DAX and CAC 40 somewhat but the drop in the pound couldn’t help the FTSE 100, which is worrying for the British index.
Shares in Kingfisher (LON:KGF) fell to their lowest level since November 2014 after the company reported a 1.9% drop in like-for-like (LFL) sales for the second-quarter. The French division underperformed the group and registered a 3.9% fall in LFL sales. The real damage was caused by the company’s outlook, which was described as ‘challenging’. The multi-year low in the share price and a gloomy forecast will make it difficult for the company to find fresh investors.
US
US stock markets are suffering a similar fate to their European equivalents and are being hit by profit taking. The American indices managed to weather the storm of the North Korean chaos better than other regions, but now we are seeing investors take money off the table.
The Federal Reserve minutes last night told us the US central bank is looking to start unwinding their balance sheet in the next few months. The Fed always stated any changes to their policy will be well timed and gradual, so when it does come about there won’t be much a reaction to it.
The US revealed some positive economic data today. Initial jobless claims fell by 12,000 to 232,000 and economists were expecting a level of 240,000. The Philly Fed index for August fell to 18.9 from 19.5 last month, but it topped the expected reading of 18.5. The US economy is still heading in the right direction, but the traders are still not expecting another interest rate hike this year.
FX
The EUR/USD fall dramatically after the minutes from the European Central Bank (ECB) meeting expressed concerns for the strength of the currency. In early 2015, the ECB embarked on a quantitative easing programme in order to drive the euro lower in a bid to assist the eurozone. Now, the region is getting stronger but so is the euro. The ECB are concerned the relative strength of the single currency will curtail the region’s recovery. The EUR/USD dropped to a three week low, and momentum is with the sellers so we might see it fall further.
The GBP/USD was dragged lower by the broad move higher in the US dollar, and the latest UK retail sales data didn’t really assist the pound either. The greenback has fully recovered from last night’s decline after the release of the Fed’s update, and that is one of the reasons for the drop in the pound. UK retail sales in July on a month-on-month basis were 0.3%, and the consensus was for 0.2%, but the June figure was revised from 0.6% to 0.3%. The negative revision outweighed the topping of the expectations, and this added to the pounds woes.
Commodities
Gold has drifted lower this afternoon as the US dollar strengthened but it is still trading well above the level it was at before the Fed minutes were announced last night. The US central bank gave off the impression it is going to start to reduce the size of its balance sheet in the next few months, but when it comes to an interest rate hike, traders aren’t holding their breath. The metal traded up $1290 but edged lower as the greenback picked up due to the decline in the euro and robust economic indicators from the US.
WTI and Brent Crude oil are marginally higher today after the large decline yesterday. The energy information agency (EIA) report yesterday showed that US oil production rose to its highest level in two years, and gasoline stockpiles actually increased when the market was expecting a significant decline. There are still major concerns about over-supply and weak demand for energy, and today’s short covering can’t keep the price up forever.
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