UK & Europe
Stock markets in Europe rose modestly on Tuesday as some semblance of calm came back into markets following a China / commodity-induced rout that pummelled prices at the start of the week.
A number of developed stock markets from the UK to Germany to the US are right now at that bottom of price ranges that have been in place since the end of August. It’s that balancing point between another sharp drop-off and another decent bounce.
A drop in pharmaceutical and house builders as well as residual shell-shock are still gripping the FTSE 100 in the wake of massive plunge in Glencore (LONDON:GLEN) shares on Monday. Short-covering has prompted a dead-cat bounce across the commodities space but there isn’t the confidence to invest in some of the less beaten down areas of the market.
Shares of Glencore rebounded over 20% on Tuesday, having dropped 29% on Monday. A supportive broker note and a statement from the company that it has “absolutely no solvency issues” proved enough for buyers to pounce and shorts to cover.
Pharmaceutical stocks across Europe were under the weather after US biotech stocks fell sharply on Monday. Hikma Pharmaceuticals (LONDON:HIK) and Shire were top fallers on the FTSE 100.
UK mortgage approvals increased to a 19-month high in August. The number of approvals was 71k, higher than the 69.8k expected and prior 68.8k. House building shares had front-run the mortgage data with gains on Monday. Shares of Taylor Wimpey (LONDON:TW) dipped over 4% after mortgage approvals data as its CEO was chosen to review home ownership by The Labour Party.
Oil & gas shares were higher. Investors in Royal Dutch Shell (LONDON:RDSa) put the dry Artic oil well behind them as the share price rebounded. The reaction was slightly more lacklustre with BP (LONDON:BP) shares after the oil giant announced cost-cutting of 30% at its deep sea oil project.
A poorly received earnings update from Wolseley (LONDON:WOS) sent shares sliding over 10% to the bottom of the index. The company lowered its revenue forecast on expectations of slower manufacturing growth in the US. The 10% drop is probably an over-reaction. The trouble is that volatility breeds volatility. When Glencore stock plunges 27%, it creates an expectation that there could be a double digit drop on any company news.
Shares of online fashion retailer Boohoo.com got a boost when the company reported a 39% rise in pre-tax profit and raised full-year guidance. The company is gaining new customers as it expands beyond its traditionally youthful target age group. International orders are also on the rise, now representing 35% of total sales.
US
Stocks in the US started on the front-foot on Tuesday after a surprise rise in consumer confidence in September and a rebound in commodity prices.
US biotechnology stocks slipped for an eighth day on Tuesday. Some had seen Monday’s rout as the final blow-out after Hilary Clinton’s critique of price-gouging last week but there doesn’t appear to be a bottom in place yet. Valeant was named as a possible target of a subpoena on Monday and other pharmaceutical companies may not be far behind them. Behind the veneer of price gouging is a fear about a very overvalued sector going into Q3 earnings season.
FX
The US dollar was mixed against the G10 universe after the Case-Shiller home price index missed expectations for a 5th month, sliding 0.2% while consumer confidence unexpectedly rose in September.
The pound was largely unmoved by a 19 month high in mortgage applications that would imply the housing market is starting to heat up again. The BOE has previously said it would want to tackle the issue of house prices through its financial policy committee rather than monetary policy committee so housing has become a less hot-button issue for the British pound. GBP/USD is hovering just above 4 ½ month lows around 1.515.
The euro fell after German and Spanish consumer prices were estimated to have fallen faster than expected in September though a surprise rise in Eurozone economic confidence helped cushion the blow. EUR/USD continues to oscillate around 1.12.
Commodities
Crude oil prices rebounded on Tuesday with both Brent and WTI contracts both up around 1.5% and WTI briefly back above $45 per barrel ahead of an expected draw in US oil inventories according to the API.
Gold extended to a third day of declines after failing to act as a safe haven during Monday’s rout in equities. When the fear in equity markets is over declining commodity prices thanks to a slowdown in China, gold as a commodity doesn’t hold much weight as a safe-haven.
Copper moved away from 6 year lows alongside equities and oil prices as a risk-taking trickled back into market sentiment.
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