Europe
After two days of gains markets in Europe have slipped back, weighed down by uncertainty as to where the next political or economic catalyst for a move is likely to come from. Against such an uncertain outlook for trade, geopolitics and concerns about an economic slowdown it is clear that investors are becoming much more risk averse.
What is clear is that money has continued to flow into safe havens, with Italy 10-Year yields hitting record lows, on hopes that Italian politicians will be able to bring about some short term political stability in the form of a new coalition government, between 5 Star and the Democratic party.
It’s been the same story on the other side of the Atlantic with US 30 year yields also falling to new record low levels, below 2%, as investors fret about the prospect of an approaching recession .
The FTSE 100 has outperformed largely due to a slightly weaker pound which has slipped back after UK Prime Minister announced that he was dissolving parliament in order to set a new legislative agenda.
Depending on your point of view this is either an assault on democracy, or a merely a case of an incumbent government trying to set an economic agenda ahead of the UK deadline for leaving the EU on the 31st October.
The reality is that both sides have been playing fast and loose with the UK constitution in recent weeks, with both sides kicking off when they find that their strategy is being tested, or circumnavigated, and this sort of thing is only likely to get worse in the coming weeks.
What appears to be being forgotten amongst all of the heat, light, and hysterical claims of a coup from today’s events is that MPs still have two big levers they can pull to prevent a no deal Brexit from happening. One is a vote of no confidence and the other is to revoke article 50, both of which MPs seem curiously reluctant to use?
Putting all of the noise to one side it is becoming increasingly clear that all roads appear to be pointing to a general election, sometime in the next few weeks.
The worst performers have been UK house builders with Berkeley Group (LON:BKGH), Barratt Developments (LON:BDEV) and Taylor Wimpey (LON:TW), all lower on elevated no deal Brexit risk.
Supermarkets are higher after Investec upgraded Morrison (LON:MRW) to a buy recommendation from hold, helping pull Tesco (LON:TSCO) and Sainsbury (LON:SBRY) higher as well.
BP (LON:BP) is also higher after announcing that it is selling its Alaska business for $5.6bn to Texas based Hilcorp Energy. This appears to be a recognition by BP management that with oil prices falling, and the acquisition of BHP Billiton’s shale assets still weighing on its margins, that they need to accelerate the reduction on their currently high debt levels of $45bn, and bring their gearing back down below 30%. It also appears that there is a recognition that the best years for its Alaskan fields are probably behind them, and as such the case for a disposal has become more compelling.
The higher oil price is also helping here with crude oil prices up by over 2% on the latest inventory data.
US
The continued inversion of the US yield curve has prompted some caution amongst US investors with US markets opening cautiously mixed.
The main story for M&A continues to be the Philip Morris (NYSE:PM) and Altria (NYSE:MO) with many shareholders unimpressed with the rationale for a re-merger.
Google (NASDAQ:GOOGL) owner Alphabet (NASDAQ:GOOG) is also in the news after the EU announced another antitrust probe, this time into the jobs search tool, which it is claimed that Google prioritises its own listings within its search results.
Tiffany & Co (NYSE:TIF) shares are higher after the company reported Q2 earnings of $1.12c a share, $0.08c above estimates on the back of better than expected performance in Chinese markets. The company also maintained its full year sales and earnings outlook.
FX
The performance of the pound has been notable for its gains over the last five days, however these gains have come to a grinding halt today, with the risks of a no deal Brexit shifting to the upside with this morning’s announcement that the government would be suspending parliament from around the 12th September.
This not entirely unexpected move has seen the pound post its biggest one day fall in three weeks with the Brexit roller coaster likely to have some more twists and turns in it when Parliament returns from its recess next week.
Commodities
Oil prices have seen a decent rebound after the latest industry data showed that stockpiles fell by more than expected with the release of the latest API data yesterday which showed that inventories fell by 11m barrels. This was confirmed by the latest EIA data which also showed a big drawdown of 10.03m barrels.
Silver prices have continued their catch-up with gold prices rising to their highest levels in over two years above $18, as it benefits from safe haven flows.
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