Europe
The IBEX 35 has fallen to a mark not seen since March as the uncertainty surrounding Catalan independence is eroding investor confidence. The head of the Catalan separatist movement has pledged to declare independence for the region within days. The Spanish King and Prime Minister oppose this, and the region has been threatened with direct rule. The eyes of the world are on Catalonia and the spike in political tensions is likely to keep investors away.
The German stock market may have been shut yesterday because of Unity Day, but the DAX notched up a fresh record-high today. The German index continues to be the strongest in Europe and robust services figures today underlines the strength of the economy.
Tesco (LON:TSCO) posted solid first-half figures today, and the retailer stated it is making good progress to achieve its targets. The supermarket giant reinstated a dividend, but the payout is only 1p, which failed to meet the expectations of some banks. The company is certainty showing signs of recovery, but it is still facing inflation, muted consumer demand and stiff competition. Today’s update was a good start, as every little helps, but Tesco will have to keep it up to fully restore investor confidence.
US
The Dow Jones registered yet another record high shortly after the open, but has retreated marginally since. The S&P 500 is a touch lower on the session, but is still relatively close to its all-time high. Just because the major US indices aren’t running away with themselves doesn’t mean that sentiment has turned sour, its likely traders are catching their breath.
The ADP employment report showed that 135,000 jobs were added in September, and the consensus was for an increase of 125,000. The August report was revised down to 228,000 from 237,000. These figure have set the tone for Friday’s non-farm payrolls report.
Shares in PepsiCo (NYSE:PEP) are down 0.5% after the company’s revenues missed its analysts’ expectations. Earnings per share (EPS) topped estimates but the dealers were concerned that drinks sales in North America were soft. The firm derives 40% of its revenue outside of North America and global growth remains strong. The stock has been in a solid upward trend since August 2015, and recent weakness in the share price could see buyers enter the fold.
Janet Yellen, the Chair of the Federal Reserve, is due to deliver a speech at 8.15pm.
FX
The GBP/USD had managed to claw back some of its recent losses in the early hours of today’s session and the robust services report from the UK ensured those early gains were held onto. Last month the UK services PMI report came in at 53.6, which economists were expecting a reading of 53.2 – which was August’s reading. The services sector in the UK accounts for approximately three quarters of the economic output, so a healthy services industry is essential for Britain.
The EUR/USD is still higher on the day even though the US dollar was given a hand by the stronger than estimated ADP number. The single currency was helped by the broadly positive services PMI reports from major eurozone economies this morning.
If the European Central Bank (ECB) wants to starting trimming its stimulus package it will need to be confident the region can withstand any alterations to its monetary policy.
Mario Draghi, the ECB President, is due to speak at 6.15pm.
Commodities
Gold traded above $1280 today but has since slipped back is its 100-day moving average at $1273. The metal has been in decline since early September and the better than expected ADP employment figures trigger a fresh round of selling. The positive turn the US dollar took in the last few hours played a role in eroding gold’s earlier gains.
Brent and WTI jumped on the back of the US oil inventory data. The report showed that stockpiles of oil fell by 6.02 million barrels, while the consensus was for a drop of only 1.5 million barrels. Last week saw a drop of 1.84 million barrels – the US excessive inventories are slowly declining.
Russian President Vladimir Putin stated the co-ordinated output cut between OPEC and non-OPEC members could last until the end of next year. Saudi Arabia have talked about extending the production freeze until the end of June 2018. Rumbling of the cut being extended could keep energy prices firm.
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