UK & Europe
A weak British currency came to the rescue of an ailing FTSE 100 on Tuesday. The UK blue chip index reversed all of Monday’s losses to trade back above 7050 after the British pound experienced a mini-flash crash. The pound struck its lowest level in two weeks before rebounding during testimony from the Bank of England Governor, causing the FTSE 100 to come off its highs.
Gains on the FTSE 100 were led by a rise in mining stocks, though some poorly-received earnings updates tempered the gains. European shares picked up a strong lead from Asia where Japan’s Nikkei touched a six-month high.
Anglo American (LON:AAL) led the gains after it reported strong production and reiterated its output targets for the year. Copper miner Antofagasta (LON:ANTO) was also a top riser, mirroring a surge in copper prices.
Whitbread (LON:WTB) shares dropped over 3% to the bottom of the main index, despite reporting a bigger than expected rise in profits and reiterated its full-year outlook. Whitbread continues to be the main beneficiary of Britain’s coffee addiction through its chain of Costa coffee shops. There is a little concern that like-for-like sales growth is headed in the wrong direction, though that trend is expected to reverse in the run up to Christmas. Whitbread shares have lost over half the post-Brexit gains and look undervalued. Both its coffee and hotel business stand to benefit from a rise in tourism and Brits holidaying at home following the drop in the pound.
Shares of engineering group GKN (LON:GKN) slumped after warning of a tougher macro environment.
London businesses will welcome the decision by the government to add a new runway at Heathrow. It will be a multi-year boom for the businesses that win contracts to build and serve a bigger Heathrow. As far as blue-chip shares, outsourcing firm Capita is bound to be a huge beneficiary of a new Heathrow runway.
US
US stocks opened higher with Apple (NASDAQ:AAPL) scheduled to report earnings after the close. Apple’s Q3 report has been slightly tainted by estimates from IDC that Apple Watch sales are down over 70% year-over-year, though still the biggest selling smart watch. The Apple Watch is the most desirable smart watch but sales figures suggest most consumers have no desire for smart watches. Investors will have to look elsewhere for the next big break-through product.
Twitter rescheduling its earnings release from afterhours to pre-market on Thursday, the same time as Google’s Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) has incited furious speculation it is setting the scene for a takeover by one of the firms. It has also been reported the social network is gearing up to announce hundreds of job losses alongside its earnings report.
FX
The British pound experienced its most volatile day since the flash crash just over two week ago. Just like the flash crash, today’s mini-episode of sharp selling had traders scratching their head for catalysts. Comments from Chancellor Hammond appear to have been the trigger, though a lack of decent liquidly, particularly on the buy-side is the ultimate cause.
Mr Hammond said he “cannot imagine rejecting the Bank of England’s bond-buying program”, opening the door more QE and further devaluation of the pound. Some skittishness before BOE Governor Mark Carney testified before the Lords Economic Affairs Committee would have played a role in the increased volatility.
In his testimony, Mr Carney acknowledged the spirit behind Prime Minister May’s Conservative Party speech where she said monetary policy had increased inequality. He also said there was no reason for parliament to debate the monetary policy framework but said monetary policy has been “overburdened” in recent years.
The dollar was well bid throughout the day, helped by better than forecast housing data and a general belief the Federal Reserve is on course to raise rates this year.
Commodities
A strong dollar resolved to send oil prices lower as Iraq’s determination not to be part of the OPEC output cut weighs on the chance of an agreement being signed off. OPEC Secretary General Mohammed Barkindo will visit Baghdad to try and resolve the dispute.
Gold prices continued to tick higher in spite of the strong dollar in signs investors are hedging bets on another rise in the value of risky assets before the US election.
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