- Stocks bounce goes into third day
- Morrisons sells M Local stores to Greybull Capital
- Apple to launch new iPhone, Apple TV
- JOLTS holts US stock rally
- Indian gold bond plan send price of Gold lower
UK & Europe
Rumblings of an accelerated fiscal stimulus plan in China coupled with the World Bank’s chief economist’s warning against a US rate rise proved enough to extend the rally in equities for a third day.
Early gains slipped back slightly in afternoon trading after economic data showed a record rise in US job openings, something the Fed may factor into next week’s rate decision. The JOLTS data is unlikely to sway the Fed in its decision next week but is a sign of strength in the economy could lead to future wage pressure.
Mining and financial companies led the rally on the FTSE 100. A broker upgrade for Hargreaves Lansdown (LONDON:HRGV) made its shares a top rider while Schroders (LONDON:SDR) and Old Mutual moved up in sympathy.
Morrisons’ agreement to sell 140 of its convenience stores to Greybull capital for £25m helped lift shares by over 3%. Morrisons stands to lose money on the sale but the convenience stores weren’t performing well so it makes sense to put the funds back into the core business. The deal gives investors confidence chief executive David Potts can execute on his turnaround plan.
GlaxoSmithKline (LONDON:GSK) was on the few fallers on the FTSE after a failed respiratory drug trial for partner company Theravance.
Ryanair (LONDON:RYA)shares leaped by 8% after the company upgraded its full year forecast by 25%. Like EasyJet who just upped their own full year forecast, Ryanair has benefited from more UK holiday makers tempted to foreign shores by poor British weather in August, a stronger pound and lower fares thanks to the drop in oil prices. As the icing on the cake, budget carriers like Ryanair could benefit from extra custom from disgruntled Lufthansa passengers facing another pilot strike.
US
US stocks opened higher on Wednesday, driven higher by hopes of stimulus in China and excitement over Apple’s latest product launch.
Shares of Apple went about a dramatic turnaround in the past few weeks, recovering from below $94 all the way back to almost $115. Whether shares can extend the next leg higher towards $120 could largely rest on today’s product launch.
The IPhone should continue to drive Apple’s success in the medium term as its largest source of earnings. The iPhone 6 and 6plus were a huge hit and single-handedly created Apple’s market share in China which was a large source of its record $18bn quarterly profit last year. Apple shares (NASDAQ:AAPL) fell as much as 20% from their peak because of the company’s exposure to a slowdown in China’s economy but also over disappointment that it didn’t break out sales figures for the Apple Watch. Though most of the tech sector also sold off as investors sought safer areas of the market.
The wider consideration is that Apple shares have underperformed those of rival tech companies like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) in the last six months because they have more innovative technology with bigger growth potential. This is perhaps where Apple TV comes in. Apple TV isn’t new but if Apple is going to begin producing original TV content for a device that has its own Software Development Kit (SDK) to enable third-party apps, that is a major threat to Amazon and especially Netflix.
Apple has a nasty habit of tweaking existing ideas into something appealing to a mass audience. The market is looking for a new breakout product from Apple to catalyse a new bullish trend. Equally Netflix is so heavily overvalued (forward P/E of 439 vs 12 for Apple), the market will be sensitive to reasons to believe the its subscriber expansion could diminish. We’ll have to see if this event showcases such a product.
FX
The dollar was mixed on Wednesday after JOLT job openings surged to record highs. There were more losses for the yen as the Nikkei surged by over 7% while the New Zealand dollar jumped ahead of the RBNZ rate decision.
The British pound was lower after UK industrial production unexpectedly dropped in August by -0.4% when a gain of 0.1% was forecast. The weak data follows disappointing PMIs last week and points to a summer slowdown for UK manufacturers.
The Canadian dollar rallied after the Bank of Canada kept interest rates on hold at 0.5% with a statement that suggests no imminent plans to cut. USD/CAD dropped back below 1.32 having earlier in the day been above 1.325.
Commodities
Sentiment towards commodities was mostly lower on Wednesday with Brent and WTI contracts both lower ahead of inventories data delayed release tomorrow because of the US national holiday.
An approved plan by the Indian government to try and curb gold imports and improve the country’s trade balance alongside another higher day in equity markets saw gold drop through its recent floor to trade down to a three week low at $1110. The plan involves encouraging households to deposit their gold to earn interest on a ‘gold bond.’ The trouble is that relatively low interest rates and a mistrust of the government means there could be limited take-up amongst the Indian population.
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