Europe
After a decent start in early part of this week European equity markets appear to be a little stuck in the mud, and while the FTSE100 has managed to make a marginal new intraday record high, there’s been little in the way of follow-through buying, suggesting some caution, in the wake of last nights Fed minutes and the clear lack of certainty with respect to the timings of further policy tightening measures.
On the corporate front UK house builders have had a decent day after Persimmon (LON:PSN) reported another set of decent numbers for its latest quarter. This hasn’t been a new phenomenon, UK house builders have seen largely decent numbers since the summer Brexit vote, yet investors have tended to adopt a cautious approach to this particular sector, given they still remain below their pre Brexit peaks.
The company announced its forward sales continued to rise while revenues for the current year were 8% above the previous year. This robust update has given the rest of the sector a timely lift, boosting its peers Taylor Wimpey (LON:TW), and Bovis Homes (LON:BVS) in particular, raising the question as to whether the negativity in the wake of Brexit has been overdone.
Gold miners are also higher on the back of firmer gold prices, with Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) both higher.
On the downside Rolls Royce (LON:RR) shares are sharply lower after a price downgrade from JP Morgan. This comes on the heels of a recent announcement by Airbus that it would be delaying the delivery of a number of its Airbus A380’s to Emirates Airlines, which use the Rolls Royce Trent engines.
US
The 20k level on the Dow continues to remain elusive as US markets opened lower in the wake of a rather disappointing ADP employment report which saw 153k new jobs added in December, down sharply from the 215k added in November. 169k new jobs were added on the services side, however on the goods producing side which generally tend to pay higher salaries we saw a fall of 16k jobs.
This may well go some way to explain the lack of wage growth as high value jobs are replaced by lower value jobs which pay less.
Weekly jobless claims by contrast dropped sharply to 235k, though this could well as a result of the gap between Christmas and New Year skewing the numbers.
On the plus side the latest ISM services report for December showed a better than expected expansion of 57.2, with new orders doing well, though employment growth did slow somewhat.
In a sign that bricks and mortar retailers continue to struggle department store Macy’s announced that it would be cutting 10,000 jobs and closing multiple stores in the wake of a weak December trading period which saw sales fall 2.1%. On-line sales though have continued to improve, highlighting a trend that is being replicated in both sides of the Atlantic, and is going to be a key challenge to high street retailers the world over.
Sector peer Kohl’s also cut its full year guidance by $0.30c a share.
In a familiar theme Walgreens the largest pharmacy chain in the US also reported a drop in sales.
FX
The Chinese yuan has taken centre stage today surging sharply for the second day in succession against the US dollar as Chinese authorities tighten liquidity, and profit taking kicks in after the latest Fed minutes suggested that the next move on US rates may well be some time off.
It would appear that some Fed officials do have concerns about the effects that US dollar strength might have on the US economy, citing significant uncertainty about the future policy outlook. This has also seen the US dollar slide sharply against the Japanese yen as well.
The pound has been unable to sustain a significant lift despite another set of positive economic data for December. The latest services PMI for December came in well ahead of expectations at 56.2, its highest level since July 2015, and reinforcing the resilience of the UK economy as the data comes together to point to a strong end to 2016. Employment saw good gains as well though the effects of rising prices were starting to show signs of feeding through into selling prices.
While this is a concern it’s certainly not a UK specific issue given the rise in inflationary pressure also being seen in the EU inflation numbers and elsewhere across the globe.
Commodities
Gold prices have continued their recovery in the wake of last nights Fed minutes helped in some part by today’s US dollar weakness, posting its best levels in nearly month.
A drop in OPEC oil output in December of 200k barrels as well as a weaker US dollar has helped oil prices continue their recent rebound from their selloff at the beginning of this week. A report that Saudi Aramco was exploring further February supply cuts of between 3% to 7% to help meet OPEC targets has helped underpin prices further here.
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