UK & Europe
European stocks rose to the highest n three days on Tuesday. The Euro Stoxx 50 has risen back above 3400 while the FTSE 100 reached above 6260, both the strongest since November 12.
What can’t go down must go up. Investors felt confident enough to dip a toe back in the water after markets held steady in spite of the largest drop since August last week and the terrorist attack in Paris.
Stock market gains did peter out when oil prices resumed usual service by dropping sharply, erasing earlier gains, albeit remaining above yesterday’s lows. Commodities continue to play an important role in current stock market psyche.
Europe’s rally tracked the gains in US markets that took the Dow Jones higher by over 200 points on Monday. The gains in the US were largely driven by a technical rebound in oil prices which saw Exxon (N:XOM) and Chevron (N:CVX) both rise over 3%.
Mining companies gave up early gains after the oil price reversal took the shine of the recovery in the commodity complex. Anglo American (L:AAL) fell by over 4% as copper prices hit a fresh six-year low.
Easyjet shares were propping up the FTSE 100 as concerns over the effect of the Paris attacks on airline travel and no special dividend took the edge off the airline reporting another record annual profit. Chief Executive Carolyn McCall inflamed fears by admitting an increase in passenger “no shows” for flights to and from France in the wake of the attacks.
Shares of Smiths Group (L:SMIN) are top of the FTSE 100, having risen a dramatic 10% after surprising markets with sales that fell only 4% in the last quarter. A bigger sales drop was expected in light of reduced demand from the oil and gas sector which is paring back capital expenditure. It was smith’s other business lines such as in the medical field that helped weather the O&G storm.
US
US stocks opened flat on Tuesday as well received earnings from retail heavyweights Wal-Mart (N:WMT) and Home Depot were undone by slightly higher inflation data that increases the likelihood of a rate hike in December.
Wal-Mart shares rose in early trading after the world’s largest retailer beat bottom line estimates but missed on the top line citing currency effects from its international operations.
Home Depot earnings topped expectations helping shares higher in early trade. US consumers continued to spend on home improvement rather than small ticket items like clothing in the third quarter. This trend has been to the benefit of Home Depot but to the detriment of apparel retailers like Macy’s.
FX
The US dollar was mostly stronger on Tuesday after US inflation data came in just ahead of expectations.
US CPI rose to 0.2% year-over-year while the core rate remained at 1.9%. The gain in the price of services shows economic strength; however the biggest contributors to the price rise in services were higher rent and medical prices, both of which take away from discretionary spending.
The pound rose against the euro but was flat against the dollar after the UK experienced annual deflation for the second month running. UK CPI held steady at -0.1% while core prices rose to 1.1% year-over-year.
The euro fell after a bigger than expected rise in German investor confidence was offset by an unexpected confidence drop across the Eurozone according to ZEW.
The New Zealand dollar fell to a new 5 week low after the global dairy auction resulted in another drop in milk powder prices, the country’s largest commodity export.
Commodities
Crude oil reversed some of Monday’s gains and some of the geopolitical risk premium from the terrorist attack in Paris comes out of the market. The Brent-WTI spread has widened from the narrowest in 10 months, suggesting some chance of a further rebound in prices. US crude inventories are expected to have built by 1.9m barrels.
Gold extended the large bearish reversal that took place on Monday, adding to losses, taking the precious metal below $1180 per oz. Gold looks very close to putting in the lowest close in five-years.
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