UK and Europe
New record highs set on Wall Street helped European markets extend a run of summer gains on Monday. Economic growth is clearly not the driver though. Disappointing GDP data from Japan has confirmed the second quarter slowdown seen in Europe and the US is a global phenomenon.
The German DAX stock index has entered positive territory for 2016 for the first time. The sluggish European growth reported for the second quarter, coupled with a new fight against the Bank of England for competitive currency devaluation increases the odds of another round of easing from the European Central Bank, perhaps this this year. It’s notable however that the DAX is a bit of an outlier compared to other European bourses, which are still down on the year.
The FTSE 100 built on small early gains in the afternoon led by the oil and gas sector as oil prices made significant gains for a third day on speculation of an OPEC production freeze. William Hill (LON:WMH)’s rejection of an improved 352p offer from Rank (LON:RNK) and 888 (LON:888) has weighed somewhat on the FTSE 250.
William Hill’s board has said the latest offer of £3.1bn from Rank and 888 “substantially undervalues” the company with its chairman calling it “highly opportunistic and complex.” The indebtedness of the merged company is an issue, but then so is William Hill’s falling profits and inability to establish its online presence, something Rank and 88 have in spades.
Shares of Bovis Homes (LON:BVS) dipped after the homebuilder offered an uncertain outlook for the impact on the company from the EU referendum, despite reporting a profit rise of 15% in the first half of the year. CEO David Ritchie has said the firm is monitoring the effect of Brexit but said the firm was “pleased with the resilient level of interest from home buyers.”
Property stocks more broadly were weighed down by data from Rightmove showing falling house prices in London for the past four weeks. Whether Brexit will add to the cooling property market or not, unless homebuilders can substantially increase construction, the net result of lower house prices will eventually be lower profits.
Sage Group (LON:SGE) is propping up the FTSE 100, with shares down as much as 3% after it reported a possible security breach. The accounting software giant has said there was “unauthorised access to customer information using an internal login”. The TalkTalk data breach, which turned out to be far less damaging than initially feared may have been a lesson to investors not to over-react.
US
US stocks opened at fresh record highs on Monday, with the Nasdaq again surpassing its dot-com era peak amid a rise in oil prices and rising hopes for retailer corporate earnings after a run of good results last week.
Shares of Twitter (NYSE:TWTR) rose over 3% on reports the social media company was in talks with Apple (NASDAQ:AAPL) to have its app added to Apple TV. The deal is a natural extension of Twitter’s push into streaming TV content. Under the deal Apple TV users would be able to watch NFL games streamed by Twitter.
FX
Currency markets were relatively subdued on Monday amidst a lack of major European and US economic data.
There was a relatively muted reaction in the Japanese yen to the latest GDP data showing growth stalled in in Japan in the second quarter. Japan grew 0% q/q and 0.2% y/y despite massive monetary stimulus from the Bank of Japan as a rise in the yen and oil prices impacted consumer spending. With loose monetary policy apparently not enough to get Japan’s economy going, there is a hope the newly introduced fiscal stimulus will do the job.
The British pound traded lower for the eighth time in nine days ahead of a week chock-full of economic data and importantly, the first hard releases for July, i.e. post-Brexit.
Commodities
Oil prices were on the rise again on Monday. Data showing Iranian oil production is back to just shy of the pre-sanctions level of 4m barrels a day increases the chance of agreement to freeze output at a meeting of OPEC producing countries next month.
Metals prices were mostly positive with gold, silver and copper up slightly amid a decline in the dollar.
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