Europe
Shares in Europe were setup for a bad day with weak industrial production figures from China and a collapse in Japan’s GDP but a dovish Bank of England helped reduce fears of an imminent rate hike in the UK and helped the FTSE 100 push to its highest in over a week before eventually paring back gains.
Ukraine blocked a convoy of trucks sent from Russia providing humanitarian aid but a Russian invasion looks pretty unlikely despite what the UN and the Polish PM have said so stocks are recovering some of the losses seen last week.
In its quarterly inflation report the Bank of England increased its growth projections for 2014/15 but also halved estimates for wage growth. Governor Carney in his press conference afterwards indicated that there were a range of views on the amount of slack in the British economy but that overall the opinion was that it had reduced since the last report.
The BOE has given with one hand and taken away with the other; the hike in growth forecasts and the comments on reduced slack were offset by the cut in wage growth forecasts. It was the bank’s emphasis on wage growth that left those assuming a rate hike as soon as November looking a little exposed.
Leading into the BOE report the latest wage and unemployment data underwhelmed with unemployment rate falling as expected to 6.4% while average earnings dropped -0.2% annually in the three months through June.
The expectation of lower rates for longer led to bank stocks Barclays (LONDON:BARC), Royal Bank of Scotland (LONDON:RBS) and Lloyds (LONDON:LLOY) being top risers while Admiral was down over 6% after reporting weaker than expected profit growth for the first half.
G4S (LONDON:GFS) managed to disprove anybody suspecting fair competition for government contracts with a 26% jump in contracts pushing up its share price despite criticism for not providing enough security guards at the Olympics and allegations of mismanaging a prison contract.
US
Stocks in the US were managing to hold onto positive territory in early trading; disappointing monthly retail sales figures and missed earnings expectations from Macy's (NYSE:M) were offset by better earnings from Deere (NYSE:DE) and an overall feeling that geopolitical tensions have eased.
Core retail sales rose by 0.1% in July against expectations of a 0.4% rise. It’s not a great start for the third quarter; there are still two more months to go but the economic data so far suggests growth in Q3 might be a bit weaker than Q2.
FX
The British pound was the big mover of the day. Following the negative UK earnings data and a dovish bank of England GBP/USD dropped over 100 pips while EUR/GBP rallied above 0.80 in a sign the pair may have bottomed out for now.
The US dollar gained against the yen but lost out to higher beta currencies as markets traded in a more risk-on fashion.
Commodities
Copper fell over 1% following disappointing Chinese industrial production data and well below recent support at $3.16 per lb.
WTI crude oil fell on increased US oil inventories while Brent crude recovered slightly after touching 13 month lows.
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