There has been some notable weakness seen in leading stocks in London this morning with the FTSE 100 shedding some 40 points and trading down to its lowest level of the week. The decline is in part due to a rise in the GBPUSD which has moved back above the 1.30 handle largely due to weakness in the buck following yesterday’s dovish comments from Fed members and news that US factory orders experienced their sharpest monthly drop in July for nearly 3 years.
North Korea remains in the headlines
Following the recent testing of a Hydrogen bomb, North Korea continue to dominate the headlines as far as financial markets are concerned. It would be easy to attribute today’s declines to a growing fear in the markets around these geopolitical tensions but there has been little by the way of fresh developments in the past 24 hours to suggest as much. The latest comments on North Korea from Russian president Putin and his South Korean peer Moon Jae-in are hardly revolutionary, and even though Trump tweeted that the US would allow higher levels of “sophisticated military equipment” to be sold to both South Korea and Japan this pales in comparison to a recent response from the White House that threatened “fire and fury.” Market participants have undeniably got a keen eye on the situation in Pyongyang but for now they are more in a wait-and-see mode than a clear risk-off mood.
Barratt falls despite strong earnings release
The worst performing stock on the FTSE 100 is Barratt Developments (LON:BDEV), with the share price lower by more than 3% despite the UK’s biggest housebuilder announcing a 12% rise in yearly profits. Housebuilding volume also rose to a 9-year high and with a 39% jump in the dividend there was a lot to like about the full-year results. However, with the stock rising heading into the earnings update this appears to be a classic case of buy-the-rumour-sell-the-news with investors taking the positive announcement as an opportunity to cash in on the impressive recent rise.Elsewhere, Provident Financial (LON:PFG) continues to decline after the recent bounce and now trades back below the 800 level. It’s not all doom and gloom however, with Micro Focus International (LON:MCRO) higher by almost 8% after the recently acquired software arm of Hewlett Packard Enterprise announced improving margins. Paddy Power Betfair is also in the green and looking to extend its recovery after hitting its lowest ever level last week.
BOC rate decision the highlight of quiet economic calendar
Whilst many market participants will be looking to tomorrow’s ECB meeting to drive market sentiment in the Euro and European equities going forward, this afternoon’s Bank of Canada announcement could be equally important for Canadian traders. The second G10 central bank rate decision of the week will be announced at 3pm (BST), and whilst there is a consensus expectation that the BOC will follow the lead of the Reserve Bank of Australia (RBA) who kept rates on hold yesterday, there is a very real possibility of a move. Overnight index swaps (OIS) markets are pricing in the chances of a 25 basis point increase at more than 40%, which, should it occur, would represent the second successive rate hike from Ottawa. 1-week implied volatility on USDCAD is close to its highest level in a year and with the pair trading at levels not seen since the summer of 2015 there is a good chance that we get some sizable moves this afternoon.