Europe
In the absence of US markets it’s been a fairly quiet day for European markets which have slipped back in the absence of any significant positive drivers, and very thin trading.
The ripple out effects of last month’s Brexit vote continue to dominate sentiment after S&P Global Ratings downgraded economic growth forecasts for both the UK and the Euro area, with the UK feeling the main brunt of some of the negative effect.
Once again it’s been house builders and banks that have driven today’s losses, with the Italian FTSEMib sliding the most as its banking sector gets clobbered again.
The sell-off in construction related stocks came in the wake of a woeful construction PMI report for June where we saw the sharpest contraction in economic activity since 2009, as uncertainty ahead of last month’s referendum saw a sharp fall in activity, in both housing and commercial building. A bigger concern now in view of the vacuum at the top of British politics is that this lethargy could well ripple out into the rest of the year.
British Land (LON:BLND), Land Securities (LON:LAND), Berkeley Group (LON:BKGH) and Persimmon (LON:PSN) have all come under further selling pressure as the slow recovery from their lows last month came unstuck in the wake of this morning’s poor data.
Worries over the banking sector have also come back into focus on reports that the Italian government might step into bail out its beleaguered banking sector with the weakest link Monte Di Paschi (LON:0R7P) once again acting as the dead weight on the sector. Now with a market capitalisation of just over €1bn the bank reportedly has €48bn of non-performing loans that it needs to deal with over the next two years. Given that the bank has already been bailed out more than once already, this would have all the hallmarks of throwing good money after bad.
With EU leaders in sharp disagreement about what to do next Italian PM Renzi has threatened to go it alone and bailout its banks unilaterally, however without lancing the boil of NPL’s that is likely to be akin to throwing more tax payers money down the drain.
The best performers have been gold and silver miners Randgold Resources (LON:RRS), Fresnillo (LON:FRES) and commodities broker Glencore (LON:GLEN) after silver prices hit two year highs above $20 a ton, while gold prices also edged back towards the highs seen last month.
The latest installment in the London Stock Exchange Group PLC (LON:LSE)/Deutsche Boerse (LON:0H3T) takeover moved a step closer today after LSE shareholders voted in favour of the deal. Now that UK shareholders have approved the merger deal attention will now turn to next week’s vote of German shareholders who also have to approve it along with any reaction German, as well as EU regulators, who might well attempt to change the terms of the deal in light of the recent UK vote to leave the EU.
US
US markets are closed
FX
Despite a really disappointing construction PMI number for June the pound has held up reasonably well however the extent of the miss does make it much more likely that we could well see a rate cut come sooner rather than later, particularly if tomorrow’s services PMI is similarly disappointing.
The Australian dollar has shrugged off concerns about the political deadlock in Australian politics to recover into positive territory as a rebound in the basic resources sector helped it to one week highs ahead of tomorrow’s RBA rate decision, where no change to policy is expected.
Commodities
Silver prices hit a two year high earlier today as haven demand drove the precious metal well beyond its 200 week MA for the first time since March 2013. In so doing it joined its bigger brother the gold price as both precious metals pushed above their respective 200 week MA’s for the first time since early 2013. At the time gold prices acted as a leading indicator for silver and given that gold prices moved beyond their 200 week MA two weeks ago there is a perception that history could well repeat itself.
Crude oil prices have traded sideways caught on the one side by reports of Nigerian militants hitting a number of targets in the country, while reports from Libya about a consensus on a unified approach to exports helped on the other. Reports that a Saudi Arabian minister had said that oil prices were on the way to rebalancing, also helped keep sentiment on an even keel.
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