UK & Europe
Better than expected US bank earnings and higher than expected Chinese inflation data helped lift spirits in stock markets on Friday.
Signs of weak global growth and hawkish Federal Reserve minutes that stoked fears of a US rate rise this year have dogged markets for the majority of the weak. The rebound on Friday was not enough to stop stocks finishing the week marginally lower.
The FTSE 100 regained the 7,000 threshold led by gains in Tesco (LON:TSCO) after it resolved its dispute with Unilever (LON:ULVR) and bank stocks which benefitted from a positive read-across from improved earnings at JP Morgan and Citigroup (NYSE:C).
Sensitivity to the pound played its part in the gains with another drop in the currency after two days of gain, supporting UK stocks.
This week has clearly seen sentiment wobble but stock market investors are still in dip-buying mode. Since the Brexit bounce began, a string of four down-days in a row has been few and far between. A decline of three days or more has generally preceded a new high.
Tesco shares topped UK equity benchmark, while Unilever shares are near the bottom after the two firms reached an agreement over “Marmite-gate”. It seems that in the war that has erupted between supermarkets and their suppliers because of the weaker pound, Tesco has won its first battle. Unilever seems to have caved in to limit the PR damage incurred by its popular products like Marmite and Hellman’s Mayonnaise not being available to customers.
The writing is on the wall though. Suppliers are clearly in the mood for renegotiation because of impact of the weaker pound on margins, and the supermarkets won’t win all the battles. It’s inevitable that while the pound remains weak, retail prices are headed higher, just as UK supermarkets were staging a fight back against discounters.
US
US stocks opened higher amidst better than expected results from JP Morgan and Citigroup.
Wells Fargo (NYSE:WFC) also narrowly topped earnings but the controversy surrounding the pick of insider Timothy Sloan as new CEO saw the shares erase early gains. Wells Fargo had led a drop in bank shares on Thursday after its Chief Executive John Stumpf stepped down with the bank at the centre of a political storm over the creation of fraudulent customer accounts.
FX
The Australian dollar – often used as a proxy in the FX market for the health of China’s economy because of its commodity exports - rose on Friday after China reported stronger inflation in September. China’s CPI grew 1.9% in September and PPI flipped into the positive for the first time since February 2012.
European Council President Donald Tusk saying Britain faces a choice of a “Hard Brexit or no Brexit” and US banks looking to uproot from London to Paris according to French Finance Minister Michel Sapin have both weighed on the British pound. GBP/USD fell back to 1.22 whilst EUR/GBP rose above 0.9.
The US dollar was mostly stronger after US retail sales (excluding auto) rose 0.5% in September, beating expectations of a 0.4% rise and turning around the -0.2% drop in August.
Commodities
Gold prices were volatile on Friday ahead of a speech from Federal Reserve Chair Janet Yellen this afternoon that could give a more up-to-date, and perhaps more confident, economic assessment of the US economy. Prices have been trading sideways above $1250 per oz but have not had any impetus to make much headway above $1260.
Oil prices dipped ahead of Baker Hughes rig count data. The euphoria created by OPEC’s decision to later make a decision about cutting output has started to ebb away. Record output from OPEC in September and a much bigger than expected rise in US oil inventories show upward pressure on supply. OPEC has to somehow pull-off a cut that’s politically acceptable to all its 17 members, get Russia to agree and then just hope US shale doesn’t produce the difference at higher prices.
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