Equities
UK stocks extended gains in afternoon trading following a positive open on Wall Street that saw the NASDAQ reach another record high.
Mining and homebuilding firms led the gains with Tesco (LON:TSCO) also a top riser after the supermarket slowed its loss of market share, according to data from Kantar Worldpanel. Shares of Persimmon (LON:PSN) pulled homebuilder shares higher after it said customer interest had been robust surround the EU referendum. Miners rose after an upbeat report on the sector from Jefferies.
Shares in France, Germany and Italy were also higher, though a report suggesting the French government-led report of Renault’s emission policies left out some “crucial details” weighed on automakers.
There had been a brief spell of summer blues amid a lack of economic and earnings data, but the generally supportive picture of central bank support for equities remains in place. With the referendum volatility having died down and the August bank holiday coming up, this will likely be one of the quietest weeks of the year for markets.
US stocks opened higher on Tuesday, matching decent gains in Europe and bolstered by much better-than-expected quarterly results from electronics retailer Best Buy (NYSE:BBY) and an unexpected monthly jump in New Home Sales.
Shares of Amazon (NASDAQ:AMZN) were slightly higher on reports it will begin its own standalone streaming music service.
FX
FX markets were relatively quiet on Tuesday amidst slow holiday trading. The bulk of the economic news was from the Eurozone, but the euro was little changed against the dollar and only slightly lower against the British pound. The fall in EUR/GBP matched an equal rise in GBP/USD.
PMI figures for the euro area in August were mostly unchanged barring a small decline in manufacturing, but this is relatively good news given potential drop in confidence following the Brexit vote. With business confidence stable, the chances of a recession in the euro area this year appears unlikely, which is supportive of euro strength.
While flat markets play a part in the minimal euro reaction to generally positive data, there is also a scepticism that this level of business confidence can continue, given that it’s still early days after the referendum.
The better data should mean the ECB remains on hold at its next policy meeting in September. Mr Draghi and co may have half an eye on the strength of EUR/GBP, which is nearing 0.88 and five-year highs after the latest round of easing from the Bank of England.
Commodities
Oil markets were volatile on Tuesday amid speculation and rumours over an OPEC output freeze. Early on, oil extended its decline on Tuesday following a bearish note from Goldman Sachs but anonymous sources reportedly from inside OPEC suggesting Iran is sending “positive signals that it may support joint action“ triggered a an afternoon rebound.
While few really expect any agreement from OPEC when Iran is still increasing production, the mere prospect of one is enough to keep short-sellers at bay. The biggest build in net speculative positions in five years on Friday was in large part triggered by massive short-covering, which could easily come back into the market, should no deal be reached.
Metals markets were relatively quiet, with gold and silver trading sideways ahead of Fed Chair Janet Yellen’s speech at Jackson Hole on Friday.
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