Europe
Just as stocks in Europe were recouping losses from theBanco Espirito Santo (LISBON:BES) sell-off, a fresh round of sanctions on Russia has forced European investors to scale back investments in any stocks potentially affected.
Unrest in Ukraine has been bubbling away in the background for months but while oil and Natural Gas exports were unaffected it has been largely ignored by stock markets. It appears though that the US and Europe are determined to keep the pressure on Russia who they believe is aiding separatist efforts in the east of Ukraine.
Given Russia have denied aiding separatists from the start and in fact accuse the US of sending special forces to help the Ukrainian military, there seems little chance of progress. Russian President Putin has described relations with the US as approaching “a dead end”.
In the latest round of sanctions, specific corporations including state oil company Rosneft have been targeted. These companies are being blocked access to US capital markets. Some of the largest multinational banks that Russian firms might use for funding are American so although the sanctions are surmountable, it does limit funding options.
The FTSE 100 dropped towards yesterday’s low but recovered as US markets opened in late trading. M&A in the sector had British American Tobacco (LONDON:BATS) and Imperial Tobacco Group (LONDON:IMT) leading the consumer goods sector higher.
ITV was a top riser on the day after BSkyB sold their stake in the broadcaster Virgin Media owner Liberty Global plc (NASDAQ:LBTYA). Liberty Global has been a big acquirer of late and chances are they could now have ITV in their sites for a takeover.
The utility sector was a drag on the main index after Scottish & Southern Energy Plc (LONDON:SSE) shares lost ground when the company forecast difficulties maintaining profits into next year.
Sports Direct (LONDON:SPD) reported a 15% gain in annual profits. The company has reported great results but the stock has been underperforming with founder Mike Ashley never far away from the headlines.
US
Russian sanctions gave stocks in the US a shaky start but sentiment easily turned more positive after a slew of corporate earnings releases announcing higher profits did more to justify current valuations.
Microsoft Corporation (NASDAQ:MSFT) announced it was culling 18,000 workers. Expectations were for a cut of around 6,000 employees. Job cuts mean cost savings and add to the bottom line which is typically good for the stock. Shares of Microsoft surged to 14 year highs to levels last seen during the 2000 tech stock bubble.
Financial giants Morgan Stanley (NYSE:MS) and The Blackstone Group (NYSE:BX) both comfortably beat earnings estimates for the second quarter.
What was starting to look like a slight recovery in the US housing market jolted the other way today after housing starts cratered to 983K against expectations of 1020K with last month’s number revised down as well to 985K.
Jobless claims dropped to 304K last week against expectations for 315K
Sentiment in manufacturing jumped according to the Philadelphia Fed Index which increased to 23.9, much higher than the 15.6 expected.
FX
Euro zone CPI was finalised at 0.5% annually. The ECB have said they will engage in asset purchases if low levels of inflation remain in the Euro zone, 0.5% is well below the 2% target and so if it is perpetuated and if the ECB is to be believed, then the path leads to QE.
For now though, the ECB is waiting for the measures introduced on June 5th to take effect, so without a dramatic downturn in inflation, EUR/USD is likely to take its direction more from expectations over US interest rate policy
The Japanese yenwas stronger today as investors sought protection from any negative impact on stocks from the Russian sanctions.
Commodities
Safe haven flow over renewed Russian concerns over aided gold which moved back above $1,300 per oz.
Oil prices were higher because the worry now is that Russia retaliates with their own sanctions particularly in energy markets.
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