UK & Europe
With half an eye on the possibility of more central bank stimulus, stocks have edged out a positive finish to the week. Markets are looking ahead to next week when a weak Chinese GDP report could prompt an interest rate or bank reserve ratio requirement cut while the ECB meeting could see more QE announced in Europe.
Stimulus certainly isn’t a foregone conclusion so stocks in Europe struggled to regain losses from the first part of the week brought on by a decline in commodities.
European Central Bank executive Benoit Coeure indicated worry in a speech on Friday over expectations the ECB can solve all problems. While the ECB is clearly missing its inflation target as suggested by the ECB’s Ewald Nowotny, Mr Coeure’s comments suggest an understanding that’s there’s little central bankers can do to combat low inflation caused by falling energy prices.
Volkswagen (DE:VOWG) shares are lower on Friday after the car giant’s registrations in Europe rose 8.3% in September, slower than the 9.8% increase in the overall market, according to the European Automobile Manufacturers’ Association.
The FTSE 100 was led higher by the oil & gas sector ahead of a meeting this weekend between Russia and OPEC that may include discussions of oil price-bands and a possible production cut.
There was divergence across the pharmaceutical sector with Shire near the top of the FTSE on bid rumours while AstraZeneca held up the bottom of the UK benchmark share index after the US Food and Drug administration denied approval of its diabetes treatment. Shire currently has a bid out for pharma rival Baxalta but there’s not been much in the way of dialogue since so attention may have switched to drugs developer Radius Health.
Burberry shares extended recent declines after luxury fashion sector peer Hugo Boss matched Burberry with its own set of disappointing earnings driven by declining sales in China.
The sale of 14 development sites is providing more power for Tesco’s turnaround machine, helping the supermarket’s shares higher on Friday.
Banks are still basking in the sunlight of the U-turn by the UK Treasury on its unpopular “guilty until proven innocent” rule that could have meant reduced risk-taking and the loss of senior talent in the industry.
US
US stocks opened little changed on Friday after a mixed set of corporate results and a decline in monthly industrial production data that met forecasts and a slight rise in consumer confidence.
General electric beat profit expectations but missed on revenues while maintaining its full year guidance. The company is in the midst of selling assets including its former retail finance business, Synchrony Financial. GE’s organic growth was 4%, helped by sales in its industrial businesses outside of oil and gas.
Mattel (O:MAT) shares dropped on the open after the company missed top and bottom line third quarter earnings expectations. Falling Barbie and other toy sales are hurting the toymaker as kids turn to iPad games and competition from Disney’s own character dolls instead.
FX
The US dollar was mostly stronger on Friday following inline industrial production and slightly improved University of Michigan consumer confidence data.
The euro is coming under pressure for a second day as speculation mounts over an extension of stimulus from the ECB in its policy meeting next week. EUR/USD failed another attempt to break above 1.15 and has slumped below 1.14 on Friday.
Commodity currencies the New Zealand dollar and Australian dollar fell most against the dollar as metal and energy prices declined and New Zealand’s rate of inflation declined in September.
The British pound remains supported following the strong earnings data reported earlier in the week with gains capped by lower reported inflation. GBP/USD is stuck between 1.54 and 1.55.
Commodities
Commodities were mostly lower on Friday as the dollar rose. As the world’s biggest consumer of commodities, China’s GDP report next week is a distinct risk-factor so investors will be peeling off positions going into the weekend.
Crude oil slipped back again on Friday ahead of US rig count data and the weekend meeting between Russia and OPEC that will discuss oil price-bands and a possible production cut. Brent crude is hovering below $50 per barrel and seems likely to continue to do so until Monday once more is known about any cooperation between Russia and OPEC.
Gold prices are oscillating for a second day above the 200 day moving average and between $1,180 and $1,190 per oz. The deteriorating prospect for a Fed rate hike this year has triggered the leg-up in gold prices but the higher core US inflation and the rally in stocks is causing a pause for breath.
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