Europe
European stocks have suffered heavy losses again because of the situation between the US and North Korea. The showdown between the two nations has scared off many investors. Whenever dealers hear the word ‘war’ they usually run for the hills, and that is exactly what we have seen today. While tensions are running high, traders will be reluctant to be long.
Glencore (LON:GLEN) had a good start to the year, as the mining giant swung to a positive earnings per share (EPS). The rebound in commodity prices combined with restructuring helped the firm get into shape. During the mining boom the company had a borrow and buy strategy, and when commodity prices collapsed, it was hit hard. Now the business has a much healthier debt to equity position, which pleases shareholders. Despite the solid first-half numbers, the stock is down 2.5%.
Prudential (LON:PRU) revealed a 10% jump in first-half profits, but the big news was the company is going to merge its own asset management business with M&G investments. Since Prudential acquired M&G investments, it has always kept the two business separate, but the merger of the two divisions will save the company £145 million. The share price has been in a steady upward trend since June last year, but it is down 0.3% today.
US
The Dow Jones, S&P 500 and Nasdaq 100 are all in the red today as dealers can’t stand the heat from the tension between the US and North Korea. US equity markets are holding up better than their European equivalents, but a global story like this will shake investors out of the stock markets. US equities, and in particular, the Dow Jones had a great run recently and the political uncertainly between the two countries has encouraged profit taking.
The US released the producer price index (PPI) and the core PPI figures for July today, both were a disappointment. The headline yearly figure came in at 1.9%, and economists were expecting 2.2%, and the June number was 2%. The yearly core figure was 1.8%, down from 1.9% in June, and below the forecast of 2.1%. This tells us that demand in starting to slip in the US, and it dampens the likelihood of an interest rate rise from the US this year.
FX
The EUR/USD is a toucher weaker on the day as the currency pair remains in the downward trend it has been in since the start of the month. The decline in French manufacturing in June, gave traders cause for concern, that the strong euro is hurting the French economy. The single currency picked up after the US announced PPI and core PPI numbers which showed declines, and undershot estimates.
The GBP/USD is slightly down on the day, and the pound was helped along by the respectable UK industrial production numbers that there released in the morning. Sterling also attracted buyers when the US posted PPI and core PPI numbers that pointed to a decline in demand. The prospect of a rate hike in December from the Federal Reserve has been driven lower by the PPI data.
Commodities
Gold has had another good run today as the decline in global equities has made the metal attractive. The safe haven status of the asset, means that gold is in high demand, and to top it off, the worse than expected PPI numbers from the US gave the metal an additional jolt higher. Gold hit a level not seen since early June today. The prospect of an interest rate hike from the Federal Reserve this year is looking less likely on the back of the PPI figures. Traders will be watching out for the CPI numbers from the US tomorrow.
WTI and Brent Crude oil are higher on the day as yesterday’s drop in oil stockpiles has spurred buying. This week, Saudi Arabia pledged to cut oil exports by 10%, and Iraq, Kazakhstan and the United Arab Emirates have agreed to properly comply with coordinated production cut. It looks like traders are taking OPEC more seriously now.
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