European stock markets opened on the back foot on Thursday after a hawkish statement from the US Federal Reserve that put a December rate rise firmly back on the table. The Fed’s downplaying of the central reasons for delaying a hike, namely low inflation and global growth suggests a hiking bias.
The Fed statement is a one-two punch for markets; one, the dovish tone means the punch bowl could be about to be taken away, and two, the 180 degree change in tone from the dovish September statement creates uncertainty.
There is still a lot of bullishness in markets after the strong run during October but the Fed has put that at risk. The central bank’s renewed focus on domestic data rather than international developments adds to the importance of today’s Q3 US GDP report in determining the Fed’s next move in December.
Europe’s technology sector was one of the best performing on Thursday after a double buyback announcement from Samsung (L:0593xq) and Nokia (HE:NOKIA) which reported a smaller than expected drop in profits in the third quarter.
The FTSE 100 was lower after a slump in the shares of some of its most heavily-weighted sectors including banks, miners and oil companies.
A huge write-down on cancelled projects in Canada and the Artic Shell (L:RDSa) hit profits at Royal Dutch Shell with its upstream business actually turning in a loss but better margins in its downstream business helped cushion the blow. French rival Total fared slightly better beating earnings expectations and revised higher its production target.
The big oil companies are all slashing capex to enable breakeven operations at around $60 per barrel. The idea is that in the medium term oil prices will average $60 per barrel. This allows big oil to keep dividends in tact by using low interest rates to run up debt levels in the short term
Shares of Barclays (L:BARC) dropped over 5% after third quarter results failed to meet expectations. Profits dropped because of worse losses in non-core businesses the bank is trying to spin-off as well as more provisions for legal settlements. If new CEO Jes Staley can sell non-core assets, improve Barclays’ core business and reduce provisions the shares have a chance, but they are some big if’s.
It was another kitchen sink quarter at Deutsche bank. Germany’s largest bank has scrapped its dividend for 2 years, will exit from 10 countries and will now axe a grand total of 35,000 jobs. There’s a big retrenchment going on under new co-chief executive John Cryan, which is necessary to upheave the culture and turn the bank around, but doing so inevitably loses investors looking for profit growth in the near-term.
More M&A in the offering in the US healthcare sector as Pfizer look to buy Allergan is cushioning the blow from a more hawkish Fed but nonetheless US markets set for a lower open on Thursday.
USA pre-opening levels
S&P 500: 8 points lower at 2,082
Dow Jones: 65 points lower at 17,714
Nasdaq 100: 19 points lower at 4,659
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