UK & Europe
UK markets were flat on Wednesday, having recovered from small early losses while shares across most of Europe were lower. The FTSE 100 is trading around 6270 while the Euro Stoxx 50 has stalled around 3430.
There was never going to be much movement in markets before the release of Fed minutes so most of the day was spent nervously watching the raid on terrorist suspects unfold in Paris.
France’s benchmark stock index has understandably been the laggard, remaining in the red while other European averages teetered around break-even.
From a market’s standpoint, it’s unnerving to see public events like football matches being cancelled because of the threat of terrorism. That’s before any conclusions are drawn on the impact on business and consumer spending.
Investors, especially those in France want to be able to draw some kind of line under Friday’s terrorist attack by finding those responsible and bringing them to justice. Unfortunately, in the light of the bomb scare in Hanover, even if the perpetrators of the Paris attack are caught, other terrorists are waiting in the wings. The risk is that terrorist attacks become more frequent, menacing European society and providing an ongoing source of uncertainty in financial markets.
Hikma Pharmaceuticals (L:HIK) was a top riser on the FTSE 100 after the US Food and Drug Administration approved one the company’s manufacturing plants in Portugal. The US regulator had previously threatened to block drugs made at the plant on quality concerns. Shares of AstraZeneca gave up early gains, having risen substantially this week on the back of the approval of its lung cancer drug.
Shares of UK Mail crashed double digits following another profit warning. Investor’s tolerance for the one-time costs associated with the relocation of the head office and mail processing facility was based on the premise of timely completion. UK Mail’s inability to resolve operating issues at the new hub will be particularly damaging to profitability heading into the Christmas season, the busiest time of the year for parcel delivery. Given that the UK Mail disappointment pertains to their own mismanagement rather than a fall in overall parcel demand, it should be a positive factor for Royal Mail (L:RMG) who report results tomorrow.
US
US stocks opened higher as investors looked through uncertainty over the raid in Paris when sentiment towards the troubled retail sector improved a little bit by well-received earnings from three of the largest US department stores. Overall though, the release of Fed minutes is leading investors to sit on their hands.
Federal Reserve minutes released later today are likely to continue the hawkish tone put out by FOMC members since October’s policy decision, including a number of comments today. To that extent, the minutes shouldn’t change the current narrative, leaving markets to trade within existing ranges.
Lowe’s reported better than expected results, following in the tracks of DIY retailing competitor Home Depot. US consumers have of late been choosing to spend disposable income on their homes and eating out instead of small discretionary items like apparel. Shares of department store Target dropped over 5% despite the company reporting a rise in same-store sales and raised its full-year guidance.
FX
The US dollar was mixed on Wednesday. Major currencies are seeing little movement leading into Fed minutes which could set the tone for markets leading into December’s meeting.
There were a number of Fed speakers chiming in their two cents. Ms Mester said the US economy can handle a 25bp move, Mr Lockhart said he was ready to support lift-off in September while Mr Dudley was characteristically more dovish, saying he looks forward to when the Fed can raise rates. Lone dissenter Mr Lacker reaffirmed hawkish beliefs.
The Japanese yen barely budged with the Bank of Japan policy decision tomorrow following the Fed minutes.
Commodities
Oil prices slid again on Wednesday after a small rise in weekly inventories was reported by the IEA when data from the API had suggested a small draw. WTI crude remained within Monday’s large $2 price range for a second day.
Having just made new five-and-a-half year lows, gold fell slightly on Wednesday, reaching as lows as 1,063 per oz. At these lows on gold, the bar is set quite high on how hawkish the Fed can be in its minutes in order to drive the price even lower, meaning there is massive short-covering risk. For most of Wednesday, the mostly hawkish comments from Fed members only provided more reasons to sell gold in anticipation of a December rate hike.
Copper came close to but managed to avoid another daily drop to new six-year lows.
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