UK & Europe
European markets were essentially unchanged on Wednesday. The lack of direction was typical of a ‘Fed day’. The uncertainty of an impending US interest-rate decision means market participants are unwilling to push prices too far one way or the other before the result is known.
Fears of sharp losses in US stocks after disappointing Apple (O:AAPL) earnings overnight and weakness in Chinese stocks had prompted early losses in Europe but a rise in the price of oil catalysed an afternoon recovery.
The FTSE 100’s technology sector was split down the middle on Wednesday as shares of Sage topped the index after sales at the accounting software firm topped expectations while those of chip-maker ARM holdings declined after weak results from Apple, one of its biggest customers.
A surprise £7bn hit to the balance sheet of RBS (L:RBS) thanks to a large contribution to its pension pot, more charges for US mortgage security and UK PPI mis-selling and a write-down at Coutts sent the government-owned bank’s shares down as much as 2%. The message from chief exec Ross McEwan was an all-to-familiar one of “putting the issues of the past behind us” but investors will be dismayed that there always seem to be more issues in front.
US
US stocks fell on the open with the tech-heavy Nasdaq seeing the sharpest declines after a disappointing set of quarterly results from Apple. The sell-off steadied within the first hour of trading with traders unwilling to carry the market too far in either direction ahead of the latest FOMC meeting.
Apple confirmed investors’ worst fear; that iPhone sales would likely see their first year-over-year decline in the current quarter. The forecasted decline comes on the back of just a 0.4% rise year-over-year last quarter. CEO Tim Cook’s reasoning that “Extreme” global economic conditions explain the below par sales doesn’t really stack up. Mr Cook cited particularly weak sales from China and Hong Kong but Chinese consumer spending has been on the rise in 2015 despite a slowing overall economy. Everybody knows iPhone sales had to peak out at some point and because the iPhone 6s added little reason to upgrade over the 6, it’s happened now.
FX
There was not a lot of movement in major FX pairs on Wednesday ahead of the US interest rate decision from the Federal Reserve. The dollar was slightly down across the board, with only the British pound the only exception.
The Australian dollar was top riser after higher than expected inflation data reduced the chance of a rate cut from the Reserve Bank of Australia in the near term. Australian CPI rose to 0.4% q/q, when a rise of 0.3% was expected. A pickup in commodity prices, most notably gold is an additional support to the currency of the resource-rich nation.
Commodities
The price of oil whipped around from gains to losses and then back to gains which were sustained despite the release of a much bigger than expected inventories build. The DOE reported a 8.4M build in oil inventories when a build of 3.4M was expected. This is the highest inventory level on record.
The reaction in crude oil markets to what was a giant inventory build was almost non-existent. It’s another piece of evidence that short-sellers are abandoning ship especially while the dollar slides before the Fed meeting.
After breaking to two month highs on Tuesday, the price of gold was stable to slightly lower ahead of the Fed meeting.
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