Equities
UK stocks edged higher on Tuesday helped by signs of a supermarket comeback, well-received corporate updates and a drop in the British pound. Gains in the FTSE 100 accelerated after data showed inflation unexpectedly slipped in October, taking the British pound lower in a boost to multinational shares.
The protracted price war is starting to reap some rewards for British supermarkets at the expense of German rivals. A readjustment of growth rates in favour of the Big Four supermarkets and away from the discounters sent Morrisons (LON:MRW) and Tesco (LON:TSCO) to the top of the FTSE 100. Deflation in supermarket prices is still present, but continues to ease. Kantar noted:
It's worth remembering that deflation has been easing since December last year, well before the (June) referendum.
Shares of EasyJet (LON:EZJ) were up over 5% in London after a steep fall in profits came in near the upper end of its forecast range. Investors have been encouraged by Chief Executive Carol McCall getting ahead of Brexit negotiations with plans for a second registration in Europe.
Shares of British American Tobacco (LON:BATS) pushed higher as investors reacted to reports its offer to buy out the rest of US tobacco firm Reynolds had been rejected.
Vodafone (LON:VOD) shares gave up early gains after better than expected earnings in the third quarter were dampened by concerns of falling market share in India.
Stocks in the US were mixed with the Dow Jones softening while the Nasdaq gained in a reversal of roles as FANG (NASDAQ:FANG) stocks bounced following a sell-off this month.
Shares of Facebook (NASDAQ:FB) remain under considerable pressure; not only because of a broader tech-selloff but because of the rising risk that is “fake news” scandal starts to put off advertisers. Facebook shares were up on Tuesday but the social network’s shares have been down over 12% this month. Facebook is caught between a rock and a hard place (or a block and like place?). If it allows “fake news,” the quality of its content is lowered, if it tries to prevent it, it risks censoring the freedom of expression behind its appeal.
FX
Sterling dropped on the surprise fall in consumer price inflation but the story of higher prices to come has been given extra credence by a huge 12.2% y/y rise in input costs, which will inevitably be passed through to consumers in coming months. Still, this data is proof that there are still some strong downward forces on prices, notably on clothing and tuition fees. The 15% drop in the pound is inflationary, but it will take time to make its way through the supply chain. Should data later this week show wages are stable, the outlook in the medium term for the UK economy should be robust.
The US dollar was largely unmoved by better than expected US retail sales data since the market is already pricing a 92% chance of a Fed rate hike in December. The US dollar index has found a short-term ceiling at 100. The dollar index may need the rate hike in place before making concrete gains above 100.
Commodities
A last round of diplomatic efforts amongst oil ministers has rekindle some hope of an OPEC oil meeting, carrying oil prices off three-month lows. Gold prices stabilised near $1220 per oz on Tuesday after touching a four-month low.
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