Global equities jump on last day of bad quarter
Sainsbury’s tops FTSE 100 after raising guidance
Copper price jump helps Glencore (LONDON:GLEN) recovery
Eurozone deflation sends euro lower
Surprise build in US crude oil inventories
UK & Europe
There was a healthy sense of relief about the move higher in European shares on Wednesday. For a minute there on Monday, stocks were on the precipice of another China-induced thrashing. The past two days have just not produced the catalyst for the follow-through to the downside.
A melt-up in copper prices which surged over 4% helped commodity-trader Glencore to another day of double-digit gains. Other mining stocks followed suit with Rio Tinto (LONDON:RIO) a top riser after the sale of its coal mine stake in Australia to New Hope. The mine sale gave Rio’s balance sheet a welcome boost in the context of fears of over-leverage in the sector.
Supermarket shares were the surprise leaders of the FTSE 100 after a well-received update from Sainsbury’s. Shares of Sainsbury’s jumped as much as 14% after the supermarket said profits would be “moderately” higher than expected this year. Profits at Sainsbury’s are still well down year over year but the slowing decline in like-for-like sales means 2015 profitability looks better than it did six months ago.
Sainsbury’s is a household name, and retail investors especially, will keep trying to pick the bottom before profits grow again. An unusually large part of Sainsbury’s float is being shorted for a large cap stock so there’s some big time short-covering going on. Even the smallest sign that the worst is behind the big supermarkets is likely to see double digit reactions in share prices like today.
The problem for the Big Four is that there doesn’t seem to be much letup from the discounters. Aldi is going all guns blazes with plans for online shopping and an aggressive store expansion in London expected to accelerate the discounter’s UK market share growth.
Tesco (LONDON:TSCO) shares have already priced in better than expected results next week, having leaped on the day of Sainsbury’s report, but could still have room to go if they are to see a double-digit jump too. Wether shares of Tesco can match the rise in Sainsbury’s may rest on whether Tesco can raise its 2015 guidance like its rival did.
A strong update from Saga saw its own shares rise but a pickup in its motor insurance business aided a leap higher across the insurance sector with shares of Aviva (LONDON:AV) up over 5%.
Barclay’s shares were up strongly as investors welcomed the bank’s intended exit from non-core markets in Europe. New Executive Chairman John McFarlane is taking the bank by the white collar and dragging it out of every market where the revenues don’t justify the resources put in.
US
US stocks opened higher on Wednesday with the S&P 500 popping back above the psychological 1900 level, the Dow Jones solidly back beyond 16k and a rally in biotech stocks helping the Nasdaq.
Wednesday’s jump is too little too late in a bad quarter for US equities, which are set for the worst quarterly decline in four years. Things could be better in the next quarter if the Fed can at least remove the uncertainty by raising interest rates. Though the slowdown in China isn’t likely to abate anytime soon without a bigger dose of government stimulus.
FX
The US dollar was up against most major currencies after data showed more private jobs were created in September according to ADP.
Commodity currencies the Australian and New Zealand dollar were higher thanks to a pickup in industrial metal prices and a higher close in Chinese equities.
A bigger than expected decline in the UK current account deficit in August coupled with confirmed 0.7% growth in the second quarter helped the pound strengthen versus the dollar and the euro.
A return to deflation in the Eurozone because of the drop in oil prices as well as a disappointing German retail sales report for August sent the euro lower. The Italian economy continues to show signs of recovery with an unexpected drop in unemployment from 12% to 11.9%. The euro is caught between uncertainties at the two central banks. Hawkish Fed speakers and the negative Eurozone CPI print that may prompt further easing from the ECB may have swung it in the favour of the bears.
Commodities
Like equity indices, copper is attempting a double bottom off the late August low, surging over 4%. There’s not quite the conviction to send commodities any lower after Monday’s rout in mining companies before manufacturing data is released from China early Thursday.
The price of gold dropped over 1% on reduced safe-haven demand and talk of a Federal Reserve lift-off perhaps as early as October.
Oil prices edged higher before an expected draw in US oil inventories according to the IEA but came off the highs following a surprise build. The lowest production since November helped keep oil out of negative territory, though it doesn’t say much for demand given there was still a build.
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