UK & Europe
UK stocks slipped back on Thursday with the FTSE 100 slipping below 6,100 while European shares were basically flat with the German DAX moving between gains and losses.
Oil price declines have steadied but another multi-year high in OPEC output made sure oil prices were lower again on the day, limiting any respite for stock markets. The multiple percent gyrations in the oil price on a daily basis has left the stock market feeling a little giddy.
Talk of more accommodation if necessary from the ECB from governing council member Erkki Liikanen softened the euro helping European markets weather the storm of another drop in the price of oil. Opinion is clearly divided amongst ECB policymakers though. Executive Board member Yves Mersch has said that a ‘very large majority’ of policymakers do not want to expand QE and see the reinvestment of securities as sufficient.
The UK stock market was downbeat as the Bank of England once again left policy measures unchanged. A dead cat bounce in the mining sector and positive updates from Centrica (L:CNA) and TUI saved the FTSE 100 from deeper losses. The FTSE 250 did slightly better thanks do decent results from Ocado (L:OCDO), Go-Ahead and Whitbread (L:WTB).
Shares of commodity trader Glencore (L:GLEN) rose double digits to top the FTSE 100 on news it is considering spinning off its agriculture unit as part of an effort to drastically cut debt levels. It’s prudent for Glencore to reduce liabilities when its business is under pressure from falling commodity prices. Going the extra mile on asset sales probably reflects a determination by management to put to bed fears in the market about the company’s solvency.
Sports Direct (L:SPD) was propping up the UK benchmark after shares plummeted over 13% after sales and underlying pre-tax profits disappointed while its warehouse working conditions were likened to ‘the gulag’ by The Guardian, raising corporate governance concerns.
The violent response in the Sports Direct (L:SPD) share price to both results and working conditions could well reflect more than just an over-reaction. Sports Direct has made a name for itself by the cheapness of its named-brand sports apparel compared to the competition. It now appears that some of the price discount Sports Direct is able to offer is by squeezing its own workforce. A blind eye has long been turned to questionable working conditions in Asia where sporting apparel is typically made; it might be a little harder for conscientious consumers to ignore the plight of workers in their own country.
US
US stocks started the day slightly higher but another drop in the price of oil made further gains hard-going. Bargain-hunters will be hesitant about buying the dip before the Federal Reserve meeting next week.
Chipotle (N:CMG) shares rebounded after co-CEO Steve Ellis sought to reassure customers and investors on national television that are worried over an outbreak of Norovirus and E. coli linked to the restaurant chain.
FX
The performance of the dollar was again defined by commodities on Thursday. The currencies of commodity-dependent countries were higher and the rest lower against the greenback.
The British pound fell against the dollar but rose against the euro after the Bank of England voted 8-1 to leave rates on hold again. The BOE minutes were predictably dovish, highlighting the downside risk to inflation given the drop in the price of oil since the last meeting.
The Swiss franc was lower against the dollar but stronger against the euro after the Swiss National Bank kept rates on hold but said more cuts could be on the cards. Any pressure on the SNB to fight strength in the franc was nullified when the latest ECB policy measures led to a rally in the euro.
The South African rand was a notable faller outsider the G10 after the president fired its finance minister. When the finance minister inexplicably gets sacked, it raises big questions about the management of the economy.
Commodities
Oil prices sank again on Thursday after OPEC revealed production rose to a three-year high in November. With Iraq raising output, Iran coming back online and no official quota, the concern in the market is that that OPEC production will continue to rise.
The large reversal of gains in Gold on Wednesday shows sellers coming in force again to defend the highs reached after the last jobs report. Because gold came down so heavily since October, another test of the lows around $1050 per oz may be needed to reverse the trend.
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