Europe
If concerns about rising trade tensions, slowing economic growth and difficult politics in Italy and the UK weren’t enough for markets to contend with, the prospect of sanctions on Saudi Arabia over the reported disappearance of journalist and US citizen Jamal Khashoggi is yet another ball for investors to juggle with as investors weigh up whether it is time to get back into the stock market in the aftermath of the recent sell-off.
We’ve seen a positive session today but it’s been slow going in the wake of a disappointing US retail sales report for September, and some concern that President Trump might look to impose further sanctions on Chinese goods in light of comments he made on US TV over the weekend.
In a sign that investors are starting to diversify out of stocks the gold price has risen sharply in the last few days to its highest level since mid-July.
This rise in the gold price has helped push Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) to the top of the FTSE100 today as a weaker outlook for stocks prompts some haven buying in the wake of last week’s heavy stock market falls.
Superdry shareholders got an absolute soaking today after the company announced a profits warning due to the unseasonably warm weather prompting a slowdown in sales of its autumn and winter collections. The company also cited currency effects due to hedging effects which weren’t able to offset exchange rate fluctuations.
BA Systems also had a disappointing day sliding to a six month low, despite the merger of US based Harris and L3 Technologies in a weekend deal that is set to create the sixth largest US defence contractor.
On the upside BT Group (LON:BT) is higher on reports that hedge fund Greenlight Capital has acquired a stake in the company, with a view to splitting off its Openreach division, while defensive stocks have also done well today with GlaxoSmithKline and Imperial Brands (LON:IMB) higher as well.
US
US markets opened slightly lower this morning as investors absorbed a couple of negative headlines from the US retail sector.
This morning’s announcement from Sears that they were filing for Chapter 11 bankruptcy has again shone a light on the parlous state of traditional US bricks and mortar retail, following in the footsteps of Toys R Us a year ago. It now seems likely that a number of stores will be closed as auditors look to get rid of the underperforming parts of the business and focus on realising what assets are left.
US retail sales for September also missed expectations, coming in at 0.1%, well below the 0.5% expected. A large part of this miss was probably down to the spill over effects of hurricanes Florence and Michael, which may well have adversely impacted US consumer spending.
On the earnings front Bank of America (NYSE:BAC) followed on from last week’s fairly positive updates from JP Morgan, Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) by beating expectations on its Q3 update coming in at $0.66c a share, above estimates of $0.62c a share.
FX
The disappointment surrounding the collapse of Brexit talks over the weekend saw the pound slide back early on, however we’ve slowly seen it claw back that initial lost ground. There has been a lot of noise about the rising prospects of a no deal outcome, and the weekend breakdown has fed into that but there is still a great deal of time to iron out any last minutes issues, despite a lot of the hyperbole emanating from various political circles.
The best performing currencies have been the Swiss franc and Japanese yen historically being seen as safer haven types of play as markets remained cautious about piling back into stocks so soon after last week’s rout.
The US dollar has underperformed today, trading just above its lowest levels this month against a basket of currencies.
The euro has managed to put aside concerns about the Italian budget, as well as a setback for German Chancellor Angela Merkel in local elections at the weekend which saw her allies the CSU post their worst result in Bavaria in since 1950, with a 37% share of the vote, down from 48% previously.
Her coalition allies in government, the SPD, fared even worse gaining 9.7% of the vote raising inevitable questions as to the cost of remaining in coalition with a Chancellor who is also rapidly losing popularity by the week.
Commodities
Gold prices hit their highest levels since July today as investors start to hedge against further falls in equity markets. While markets in Europe appear to have stabilised in the past day or so the nature of the stabilisation speaks to
some concerns that it can continue.
Crude oil prices edged higher initially this morning over concerns that Saudi Arabia might weaponise their position as a swing producer for the oil market if they were to be sanctioned for the unexplained disappearance of US citizen and Saudi journalist Jamal Khashoggi.
If the Saudis were to follow through on this implied threat, which seems unlikely, given the enormous damage it would do to their longer term reputation, the fact the threat was implied is likely to have done enormous damage to their reputation as a force for economic stability. Even the Soviet Union at the height of the cold war didn’t resort to threats over gas supplies.
As it transpired the Saudi’s quickly walked back any prospect that they might go down that road, a wise decision given concerns about waning demand which is already weighing on the price and saw Brent and US prices post a bearish weekly reversal last week.
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