Europe
European markets had been already tracking higher in early trade, even before this morning’s ceasefire chatter, largely due to a surprisingly strong Chinese HSBC services PMI number, which showed a sharp turnaround in August, after hitting a nine year low a month ago.
These gains got some added fuel in the wake of reports from the Ukrainian President Poroshenko that a “permanent ceasefire” agreement had been reached between Ukraine and Russia. This prompted a sharp move higher in equity markets with the FTSE 100 touching its highest levels since 2000.
While it’s always nice to see positive headlines of this nature it’s always healthy to have a degree of scepticism when reports such as these come out; particularly in this case, given that Russia has always maintained that it doesn’t have a military presence in Ukraine. If it were seen to confirm this headline then it would be acknowledging that it has been telling lies all along about its influence with the separatists.
This scepticism proved to be well founded as within the hour these reports were getting rebuffed with Kremlin officials stating that a ceasefire could not be agreed because Russia was not a party to the conflict, while Ukrainian President Poroshenko removed the word “permanent” from the previous statement.
That being said the fact that we are seeing discussion has raised hopes of a paring down of tension which has helped underpinned markets today and kept them moving forward, though it should also be remembered we’ve had ceasefires before, and seen them unravel.
To conclude we still remain in a very fluid situation with the likelihood of further sanctions being announced against Russia in the coming days, with the associated economic damage they could well cause.
Amongst the main gainers today we’ve seen Vodafone (LONDON:VOD) push higher, making four month highs on speculation that it might be the target of a bid from Japanese telecoms group Softbank Corp. (TOKYO:9984).
Also making good gains is international construction equipment rental company Ashtead (LONDON:AHT) after the company reported that it expected to beat full year profit expectations, after a strong rise in revenues in Q1 saw profits jumped by a third.
On the downside Admiral Group (LONDON:ADML) shares are lower after the company was downgraded to “underweight” by Barclays with a price target of 1,166p.
Hargreaves Lansdown (LONDON:HRGV) shares are also down sharply after their numbers came in broadly in line with expectations, while also adding an extra dividend. It would appear that investors are less optimistic then management about the company’s ability to deal with new regulatory changes.
Also lower with the recent weakness in precious metals prices, both Fresnillo (LONDON:FRES) and Randgold (LONDON:RRS) Resources are also both tracking to the downside, with Randgold also being pressured by a broker downgrade from Deutsche Bank.
US
US markets took their cues from today’s positive European session with the S&P 500 opening at a new record high on this morning’s chatter about a possible cease-fire in Ukraine.
The improving US economy will also be in focus today as factory orders for July rose 10.5% as a result of the recent deals done at the Farnborough air show. The bigger concern remains that outside of the big orders consumption amongst consumers still remains weak.
August vehicle sales also came out much better than expected with Chrysler (MILAN:DAI) showing a 20% gain, while attention tonight will be on the latest Fed Beige Book survey of economic conditions around the regions.
FX
The best performer today has been the AUDUSD after RBA governor Glenn Stevens indicated that interest rates were probably as low as they are going to go and that politicians need to do more to improve economic conditions in the Australian economy.
The USDCAD has also pushed higher after the Bank of Canada left rates unchanged and presented a much more upbeat assessment of the Canadian economy.
The GBPUSD has continued to come under pressure, particularly against the euro as markets start to worry about the uncertainty a Scottish yes vote could mean later this month. We did see a sharp move higher in the wake of a much better than expected August services PMI number suggesting that the UK economy continues to outperform its European peers.
Commodities
Oil prices have rebounded from yesterday’s declines on hopes that a stable ceasefire will bring to an end concerns about declining demand from a European economy that is likely to continue to suffer while sanctions remain intact.
The key question is really whether any ceasefire holds and given recent history you would have to have a certain degree of scepticism, but for now Brent prices have pulled off their multi month lows, while US prices are getting a boost from the continued improvement in US economic data.
Grain prices have also fallen on the back of this morning’s ceasefire chatter with corn and wheat falling back sharply in the hope that an end to the fighting will improve the prospects for a region that accounts for nearly a fifth of global supply.
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