Europe
European markets have appeared uninterested bystanders to today’s broader moves in UK markets and the currency markets today, with the DAX and CAC40 treading water, but with a slightly softish bias.
The rebound in the pound, along with a slide in the US dollar appears to have been the catalyst for some hefty profit taking in the FTSE100 as it looks to post its biggest one day decline since 11th November.
Amongst the biggest decliners Burberry has slipped back sharply, probably as a result of today’s rebound in sterling, and ahead of its Q3 earnings update which is due tomorrow. The share price has risen over 50% since the lows in June, due largely to the decline in sterling and the potential positive impact on its overseas earnings.
Inspection and services group Intertek has also come under selling pressure as a result of a broker downgrade from Credit Suisse (SIX:CSGN).
The best performer has been Rolls Royce (LON:RR) after the company reached a £671m deal to settle the various corruption probes it is currently embroiled in, removing a significant risk overhang to its business.
A series of broker upgrades has served to push Hargreaves Lansdown (LON:HRGV) and Standard Chartered (LON:STAN) Bank higher on the day, however these have not been enough to stop a rush of profit taking on the FTSE100 as the pounds recent declines appear to have found a short term base.
British American Tobacco (LON:BATS) is also lower after announcing that it would be raising its bid for Reynolds American to $29.44c a share and 0.526 BAT ordinary shares for each Reynolds share, subject to approval from both sets of shareholders.
US
US markets opened lower after their long weekend break as uncertainty surrounding the new President elect’s domestic policy continued to weigh on risk appetite, ahead of his inauguration later this week.
Even a decent trading update from US investment bank Morgan Stanley (NYSE:MS) hasn’t been enough to push aside the caution. The bank returned profits of $0.81c a share, beating expectations of $0.65c a share, with revenue also beating forecasts.
The US consumer continues to be the bellwether of the US economy and it would appear that the luxury sector is also having its problems with Tiffany announcing that it saw a 4% drop in same store sales over the holiday period.
In M&A activity Reynolds and British American Tobacco have struck a revised deal that raises the previous bid by about $2bn.
FX
The pound has rallied sharply today leaving its peers in its wake, in a classic bear trap rally as warned about this morning.
The rally has come about in the wake of a combination of factors, firstly a relief rally as a result of the unveiling of a Brexit plan from UK Prime Minister Theresa May. Secondly, a 29 month high in inflation, which is likely to give officials at the Bank of England pause for thought in the coming months, when it comes to setting policy.
The final piece of the puzzle came in the form of a US dollar sell off which came as a result of comments by President elect Donald Trump when he stated that the currency was too strong, remarks that were re-emphasised by one of his advisors Anthony Scaramucci who warned of the effects of a strong US dollar.
These gains if sustained could well precipitate further gains in the coming weeks back towards levels last seen in December at 1.2800.
Commodities
The weak US dollar has helped push commodity prices up across the board with oil prices getting a bid from comments by OPEC officials that the market could come back into balance fairly quickly.
Gold prices have also risen to a new six week high as the sell-off in equity markets along with rising uncertainty ahead of Trump’s inauguration on Friday, while the weaker US dollar has also helped.
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