Equities
An initial boost from positive Chinese economic data fizzled out on Tuesday as attention turned to the rising possibility of a Trump presidency. An ABC / Washington Post tracking poll put Donald Trump ahead by one point for the first time since May. Polls from Battleground states have tightened significantly, leaving the race too close to call, a substantial turnaround from previous complacency over a Clinton victory.
Two of the four big central bank meetings this week have come and gone with little fanfare but market sentiment remains fragile ahead of interest rate decisions for the US and UK. The Reserve Bank of Australia and Bank of Japan kept rates on hold on Tuesday.
On the FTSE 100; gains in the shares of Royal Dutch Shell (LON:RDSa) and miners buffered losses in BP (LON:BP), Standard Chartered (LON:STAN) and healthcare shares.
Disappointing quarterly results from US healthcare giant Pfizer (NYSE:PFE) pummelled UK pharmaceutical stocks including Shire and Smith & Nephew (LON:SN). The sector was already under pressure as investors priced in a hostile Clinton presidency, though that prospect looks slightly diminished today.
Both Royal Dutch Shell and BP both beat earnings expectations but Shell saw a return to profit growth, helped by its takeover of BG Group whilst profits at BP halved. It is the ninth consecutive quarterly earnings decline from BP. BP revising down its forecast for future oil prices calls into question the sustainability of its dividend plan.
Mining companies including Anglo American (LON:AAL) and Antofagasta (LON:ANTO) gained on the prospect of higher metal demand from the manufacturing industry of world’s biggest consumer of commodities.
US stocks fell in early trading as economic data came in mixed, investors parsed earnings and kept an eye on election news.
FX
The British pound gave up most of its early gains after UK manufacturing data for October slightly missed expectations. The UK Markit manufacturing PMI for October came in at 54.3, a slowdown from the upwardly revised 55.5 in September.
Sterling has been on a charge since late Monday afternoon when speculation began (or information leaked) that Mark Carney would extend his five-year stint as Bank of England Governor by an extra year. The kneejerk reaction was relief that Mark Carney is staying to oversee the Brexit negotiations. On further inspection, Mark Carney not serving the full eight-year term is either him snubbing Theresa May after her critical comments -or the Prime Minister is not as keen for him to stay as she has said publically. Neither scenario is a good sign for the independence of the Bank of England.
The US dollar dropped on Tuesday as rising election uncertainty and nerves ahead of tomorrow’s FOMC policy decision pipped economic data in the pecking order of importance for traders. A surprise monthly decline in construction data in September didn’t help sentiment, though manufacturing data improved in October.
The Australian dollar was one of the top FX risers after the RBA left rates on hold and gave no overt sign of another interest rate cut being on the way.
The Japanese yen bounced back from earlier losses as the dollar weakened. The yen has seen early decline after the Bank of Japan cut its inflation forecast.
Commodities
Crude oil prices edged higher ahead of inventories data from the American Petroleum Institute. The price of benchmark crude contracts have fallen back to levels last seen when OPEC agreed to cut output in September at an unofficial meeting in Algiers.
Reaching a deal at the November OPEC meeting does look in doubt, but without it being officially written off, the oil price decline over the past week looks a little overdone. For now Brent crude has found some technical support near $48 per barrel; a daily close above $50 could take the wind out of the sails for short-sellers.
Weakness in the US dollar and rising uncertainty from Presidential nominee Donald Trump rising in the polls saw gold breakout to a three-week high. The gold price has continued to climb after CFTC data showed the first rise in net long positions in four weeks. Gold appears to be being accumulated as a hedge against equity market declines before the US election.
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