It’s been a subdued start to the new week in Asia with the Nikkei and the Hang Seng finishing the day close to where they started. Chinese markets on the other hand posted some decent gains as the Chinese version of “Black Friday” also known as “Singles Day” saw another record breaking year with $30.8bn of sales in 24 hours.
This would suggest that for all of the pessimism about a slowdown on the Chinese economy and the ongoing trade war with the US that domestically the consumer still seems in fairly good shape.
We’ve also seen a decent rebound in Brent crude oil prices at the start of the week after hitting a six month low on Friday, on speculation that OPEC might look to cut output in response to concerns about oversupply which has seen the price decline for five weeks in a row. The Saudi oil minister said this morning that he saw a need to cut output by 1m barrels a day from October levels. This appears to be in contrast to the Russian position where the current surplus appears to be being viewed as temporary. These differences of opinion would appear to suggest that any production cut still remains some way off and that while we may see some sort of rebound in the short term the longer term bias appears to have shifted to the downside.
The speed of the decline from the recent peaks appears to have caught a lot of people by surprise but given that there have been rising concerns about a global slowdown, the prospect of a move towards $100 as some had predicted had always seemed unlikely. In a way the decline in prices should also be viewed as a positive in that it could well act as a fiscal stimulus as the pressure on consumer wallets eases as prices fall back, from their recent multiyear peaks.
The pound is also back in the spotlight this morning after a weekend of more negative headlines. Last week the pound had a good run on the back of a raft of positive Brexit headlines, and is now starting to ease back on a combination of a stronger US dollar, and an increase in uncertainty as to whether any prospective Brexit deal will get past the UK Parliament. The euro has also come under pressure, hitting its lowest level this year after triggering a raft of stops below 1.1300, sending the US dollar index to its highest levels since June last year.
On the plus side a weaker euro and pound appears to be generating an uplift for markets in Europe which have opened higher this morning despite ongoing concerns about difficult politics in both the UK and Italy with the deadline for any revision to the Italian budget expected to be sent to the EU Commission tomorrow. It is unlikely that any revisions will be made making it likely that we could see an escalation between the EU and Italy later this month. For now markets appear to be pricing in the prospect that one side or the other will blink. It doesn’t seem likely that it will be the Italian government given current borrowing costs which historically are still quite low.
On the company’s front mining and basic resource stocks are leading this morning’s gains helped by firmer commodity prices, and a weaker pound.
Wood Group shares are on the up after the company announced it had won $53m of new contracts with the Abu Dhabi National Oil Company. Rio Tinto (LON:RIO) shares are also higher as the company completes its 41.2m share buyback.
Drinks maker Diageo (LON:DGE) shares have edged modestly higher on reports that it has sold a number of brands, including Seagram’s VO Whisky to US distiller Sazerac for $550m.
Shire shares are also higher on reports that Takeda is set to win conditional EU antitrust approval for its $62bn acquisition of the Dublin based pharmaceutical giant.
On the downside tobacco stocks have dropped sharply in response to a report that the US FDA is looking to ban menthol cigarettes, sending British American Tobacco (LON:BATS) shares to their lowest levels in three years.
With US bond markets closed for Veteran’s Day US stock markets look set for a subdued open.
Dow Jones is expected to open 6 points higher at 25,995
S&P500 is expected to open unchanged at 2,781
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