Europe
Europe’s markets have had a slightly negative bias today giving up some of yesterday’s gains as investors absorb some disappointing earnings numbers from the banking sector as well as reports of further allegations of wrong doing by Volkswagen (DE:VOWG) in the US.
Volkswagen is back in the headlines today for all the wrong reasons after the US Environmental Protection Agency (EPA) accused it of using “defeat devices” on its 3 litre diesel engines used in the Porsche Cayenne and Audi A6 models. VW has denied this is the case, arguing that the software was permissible and in no way identical to the software on the 2 litre models, but this hasn’t stopped renewed declines in the share prices of auto shares, with Porsche shares also getting clobbered. BMW shares also were also caught up in the fallout despite posting better than expected numbers for the latest quarter.
These new charges are an unwelcome reminder that the car industry is likely to face further scrutiny in the coming months as more models are tested, with the prospect that other manufacturers could well get dragged in. The allegations are all the more serious given that VW’s new CEO Matthias Muller came from Porsche and any hint of further deception could well see his position come under scrutiny.
Standard Chartered (L:STAN) shares have also been hit hard after the bank announced a surprise $139m loss in Q3, as well as announcing a rights issue of $5.1bn. There had been an expectation that we might have got an announcement about a rights issue in the aftermath of next month’s Bank of England stress tests, but the surprise loss appears to have forced new CEO Bill Winters hand, as the bank struggles to overhaul its business at a time when emerging markets are struggling.
UK house builders have also come under pressure today after a broker downgrade from Liberum Capital, which suggested that the certain parts of the sectors gross margins were a little too fat, with a particular focus on Taylor Wimpey (L:TW) and Barratt Developments (L:BDEV).
Soon to be absorbed energy company BG Group (L:BG) is on the up, along with the rest of the sector after Royal Dutch Shell (L:RDSa) CEO Ben Van Buerden stated that the merger would save an extra $1bn a year when it is finally completed, with further cuts to come from reductions in exploration costs. By 2018 the combined company is expected to spend less than $3bn a year on exploration.
The best performer today has been aerospace parts maker Meggitt (L:MGGT), which after recent sharp falls appears to have seen the buyers come out of the woodwork with a positive note from Barclays (L:BARC), saying it’s too cheap to ignore.
US
While US markets opened lower today they have struggled for direction as economic data continues to disappoint. Factory orders in September slipped 1% in September while we also saw a downgrade to the August numbers from -1.7% to -2.1%.
If the Federal Reserve is going to raise rates next month it seems likely it will have to do it against a backdrop of particularly weak data.
On the companies front Candy Crush game maker King Digital shareholders got a “get out of jail free” card on news that Call of Duty game maker Activision Blizzard is acquiring the company for the princely sum of $18 a share, still well below the IPO price of March 2014, but well above the lows seen in the last 12 months.
It would appear that Activision is looking to crack the mobile device market and widen its demographic reach, which King Digital has a decent footprint in.
Wearable devices maker FitBit has also continued its declines from yesterday after the company said it sell millions more shares and removing lock-up restrictions on another 2.3m shares tomorrow.
The oil and gas sector has once again been the best performer, with Chevron (N:CVX) continuing its gains from yesterday.
FX
The Australian dollar has been the best performer today after the Reserve Bank of Australia left interest rates unchanged at record lows of 2%, and outlined a slightly more positive outlook for the Australian economy. This slightly more upbeat outlook would appear to diminish the likelihood of a rate cut next month and more into the first quarter of next year.
The worst performer has been the New Zealand dollar which continues to struggle after rebounding from six year lows in September. Speculation continues to grow that the RBNZ might cut rates further at next month’s meeting, but the recent rebound in milk prices has helped underpin the kiwi but there does appear to be some signs of exhaustion in this particular rebound. Tonight’s economic data and GDT auction could be the catalyst that pushes the kiwi further down.
The euro has also continued to come under pressure against a resurgent US dollar
The pound has also slipped back a little despite construction PMI for October coming in as expected at 58.8 as the UK economy looks set for a fairly solid start to Q4.
Commodities
Crude oil prices have been pulled both ways today, pushing lower initially on the back of concerns about continued oversupply after Russia posted record levels of output yesterday, but they were pulled back from their lowest levels after the UAE energy minister said that he saw oil prices increasing once more as demand recovers and the shale oil supply drops. These sorts of moves are becoming familiar with the fundamentals weighing on the price, while OPEC ministers try and put a floor under prices by jawboning it higher.
Gold prices have continued to remain under pressure ahead of this week’s widely anticipated US employment report.
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