Europe
A weaker pound has helped underpin the FTSE 100 today but it’s not been particularly inspiring stuff with the FTSE 100 trying and failing once again to retest the recent highs above 7,550, while the FTSE 250 slipped back after the OECD posted a rather bleak outlook for the UK economy, due to ongoing uncertainty as a result of Brexit.
European markets have also posted modest gains with the German DAX closing at a record high led by Infineon after the company received a positive update from Bank of America (NYSE:BAC) due to its strong position in the semiconductor market. The Spanish market also enjoyed a positive day as investors dip in and out of the market ahead of Thursday’s Catalan deadline.
In the UK market it was a disappointing day for the travel and leisure sector after Merlin Entertainments' (LON:MERL) latest market update saw its share price do the equivalent of its vertical drop Oblivion rollercoaster and undergo a stomach churning drop to a one year low after the company reported that revenue growth was flat in disappointing summer trading. Management cited bad weather in Europe and Florida, as well as lower footfall due to concerns over terror attacks. The company did cite some successes with the opening Legoland Japan, and stated that it expected Legoland New York to open in 2020.
Also disappointing, Mediclinic International (LON:MDCM) warned shareholders that it would see earnings fall short by about 10% due to a disappointing performance in its South African and Middle Eastern operations.
On the plus side education publisher Pearson (LON:PSON) saw revenues for the year to date come in line with expectations, while at the same time the company tweaking the lower end of its profit expectations for the current year.
US
New records for US markets which have once again taken their lead from upbeat earnings announcement, of which there are several today, with Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and Johnson & Johnson (NYSE:JNJ) all beating expectations on the top line.
There was some weak spots on the banking side for both Goldman Sachs and Morgan Stanley(NYSE:MS) with their bond trading operations showing weak revenues, but this has been offset by gains in wealth management and other areas of the bank.
Goldman in particular crushed expectations posting revenues of $8.3bn or over $5 a share, well above market expectations of $4.17c.
Johnson & Johnson(NYSE:JNJ) also posted a decent quarter on the back of an increase in sales of new cancer drugs as well as an earnings uplift in the wake of its recent acquisition of Actelion Ltd (LON:ATLNCHF).
Netflix (NASDAQ:NFLX) is in focus after the company posted yet another bumper quarter in adding 5.3m new subscribers, taking its total subscriber base to 109.3m. The company was also bullish on its outlook predicting that they expected to see another 6.3m subscribers by year end.
The company’s recent price rises to a number of its content packages don’t appear to be affecting demand for its content, which is just as well given that spending on new content is expected to remain high, at around $7bn-$8bn for next year. Revenues rose to $2.99bn, pushing the share price to new all-time highs on the open.
FX
The pound has come under pressure despite the latest inflation numbers coming in at a five year high of 3% while the latest musings on monetary policy from new MPC members Silvan Tenreyro and deputy governor David Ramsden suggested that they were in no rush to raise interest rates at the next meeting in November. Governor Carney’s testimony, while not ruling out the prospect of a November rate increase due to higher inflation, was also circumspect but he did say that he did anticipate having to write a letter to the Chancellor next month explaining why CPI was more than 1% above target at over 3%.
While markets continue to believe that the Bank of England will follow through on expectations of an interest rate rise in November, today’s testimony has shown that not all on the MPC believe that it is the right thing to do and as such we could well see a split on the committee if the bank does move next month.
The US dollar has also got a bit of a lift as speculation about the new Fed Chair gets ratcheted up a notch with the latest candidate, John Taylor moving up the order of probable appointees. He is perceived to be as a slightly more hawkish, which given that the President will have the ultimate say on the final candidate means that he probably won’t get the job. President Trump is likely to want someone with a slightly more dovish bias and neither Kevin Warsh nor John Taylor fit into that category.
Commodities
Brent crude oil prices have continued to edge back towards their highest levels this year as skirmishes between Iraqi and Kurdish forces prompt concerns about supply disruption in and around Kirkuk. With US President Trump ramping up his rhetoric over Iran and the prospect that the US might impose fresh sanctions, the downside for oil prices appears to be becoming much more limited.
Palladium prices moved above $1,000 yesterday for the second time this year, but still ended up finishing the day sharply lower, posting a key day reversal. That should act as a warning for investors and traders alike as this sort of price action can usually be indicative of a market top. Certainly the move to levels last seen in 2001 was worthy of a headline or two, however the commodity’s inability to hold onto those gains would suggest that while the long term direction remains positive, in the short term we could see sharp move lower.
To put it into context, the price is already nearly 50% up on the year, and up 80% since the beginning of 2016. If we fail to gain a foothold above $1,000 we could fall back quite sharply. Fundamentals maybe driving the price higher, but the technical outlook suggest the possibility of a bull trap.
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