UK & Europe
The unwelcome combination of Federal Reserve minutes, signifying a likely US interest rate hike this year and signs of slowing global growth from weak Chinese export data sent UK stocks lower on Thursday. The FTSE 100 fell back below 7000 and is down on the week.
The drop in China’s trade surplus, which included a surprise fall in imports, meant the basic resource sector which has a big exposure to Chinese commodity demand, was dragging the UK equity benchmark lower. Shares of Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) were top fallers on Thursday, but are still up in a week that has seen domestically focused shares come under pressure because of the weaker pound.
Shares of Tesco (LON:TSCO) and Unilever (LON:ULVR), one of the supermarket’s most prominent suppliers, both dropped over 3% as investors became alarmed over a dispute on prices. Unilever is reportedly pushing for a 10% price rise for the products it sells at Tesco because of the drop in the value of the British pound. Tesco has responded by removing some of the goods from its online stores.
Marmite, probably Unilever’s most divisive product has found itself at the eye of the storm. As a former Unilever executive, Tesco boss Davis Lewis is well suited to judge the need to raise prices. Understandably, manufactures like Unilever which import goods to the UK are always a bit quicker to want to raise prices when the pound falls than they are to lower prices when it falls. There is also the issue the question over some of it products, like marmite, which are produced in Britain with British ingredients. Tesco will be arguing that in the interest of long-term customer demand for the products, that Unilever absorb the lower profits now, just as it absorbs the higher profits when the currency is stronger.
Sports Direct (LON:SPD) shares gained ground on further management reshuffles, which investors hope will guide the retailer away from the scandal over poor working conditions and towards better corporate governance.
US
Stocks in the US dropped on Thursday, with the Dow Jones falling by triple digits and the S&P 500 dropping 1% after hawkish Fed minutes signalled a rate rise is likely this year. The drop extends declines seen in the last two days to take the Dow to near a one-month low.
The yield on the 10-year Treasury note has fallen since the FOMC minutes were released, but this was against general direction of travel. The rise in yields over the past two weeks threatens to derail the attractiveness of stock markets for income investors.
Shares of Wells Fargo (NYSE:WFC) dropped after its chief executive John Stumpf stepped aside two days before the bank reports third quarter earnings. His replacement Tim Sloan, a long time Wells Fargo insider has not been well-received by politicians. Investors and politicians alike had been calling for somebody to refresh the corporate culture that led to widespread fraud at the bank. Mr Sloan has already courted controversy saying Mr Stumpf quitting was an “incredibly selfless act when you think about it.” Mr Sloan’s tenure could end up being pretty short-lived.
FX
Volatility was somewhat reduced in FX markets on Thursday, with only the Japanese yen gaining from a flight to safety as equity markets declined. The US dollar was mostly lower in profit-taking from a bullish run up to the Federal Reserve meeting minutes.
The British pound was stable after posting its first positive day since the flash crash. The weak Chinese trade data weighed on the commodity-sensitive Australian dollar.
Commodities
Oil prices pulled off early lows brought about by the build in US inventories reported by the American Petroleum Institute after Chinese oil imports reached a new record.
Having failed to make any headway above $2.20 per lb, copper prices finally gave up the goose on Thursday, falling under $2.12 triggered by the drop in China’s trade surplus.
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