- German trade aids European share rally
- Whitbread (LONDON:WTB) bottom of higher FTSE 100
- US stocks out of ‘correction’ after Labour Day
- Oil, copper prices jump
UK & Europe
UK and European shares rallied in early trading on strong economic data from Germany and speculation of stimulus in China. Benchmark indices managed to maintain gains throughout the session supported by an early rally on Wall Street.
A late ramp on the Shanghai composite despite disappointing trade data helped ease concerns of an immediate return to plunging stock markets on China’s return from its national holiday. There’s some relief that yesterday there were some more sensible investor-friendly regulations tabled by Chinese authorities; namely the removal of tax on dividends and introduction of a circuit breaker for the Shanghai Composite stock exchange.
German exports and imports improved in August. It’s comforting to see the devaluation of emerging market currencies; particularly the Chinese yuan is not yet having a material effect on demand for European goods.
Eurozone GDP growth for the second quarter was revised higher to 0.4% from 0.3%.
The FTSE 100 rallied over 1% towards 6,200 on Tuesday. Financials were the best performing sector while utilities also got a boost from broker upgrades. A 6% leap in the shares of Germany’s Commerzbank (XETRA:CBKG) after a broker upgrade boosted banking shares across Europe. A broker upgrade to United Utilities saw shares trade higher with the likes of Centrica (LONDON:CNA) and Severn Trent (LONDON:SVT) moving up in kind.
Whitbread PLC (LONDON:WTB) was the biggest faller after a trading update showed sales rose less than expected and warned the minimum wage could force up prices at its Costa Coffee chain, Premier Inn and restaurant businesses. With the BRC reporting a downturn in sales during August, it seems Whitbread has like many retailers, fallen prey to the wet weather and stronger pound that’s seen people spend their money on trips abroad.
UK Insurer Amlin (LONDON:AML) was bought by Japanese rival Mitsui Sumitomo sending shares higher by over 30%. The deal was for £3.47bn, a hefty 36% premium over Amlin’s share price on September 7. The size of the premium possibly reflects a sum needed to overturn the Amlin management’s previously stated disinterest in a deal. With the Nikkei 225 at multi-year highs, Japanese companies have been on the lookout for opportunities to use inflated market caps to fund expansion away from the sluggish domestic economy.
US
US stocks soared on Tuesday with the Dow Jones gaining over 300 points and the S&P 500 jumping out of ‘correction’ territory. US investors are feeling a bit cheerier after their long weekend break and using positive sentiment from Europe and Asia to buy the dip in domestic stocks.
The near 2% surge in US markets is mostly a bounce back from Friday’s sell-off but weak Chinese trade data possibly sets the tone for more stimulus from China. The logic is that the PBOC won’t want to rock markets with one-off currency devaluation. More likely, China will be more incremental in weakening the exchange rate with more cuts to bank reserves and interest rates if the economy still shows signs of slowing.
Shares of Apple (NASDAQ:AAPL) jumped over 2.5% on the open, taking the tech sector higher with it, though in a notable sign of weakness, shares of Twitter (NYSE:TWTR) and Netflix (NASDAQ:NFLX) were both trading lower.
FX
The US Dollar was mostly lower on Tuesday as a lack of economic data and renewed stock market confidence saw a return to high beta currencies such as the Australian dollar and a move away from the safety of the Japanese yen.
The British pound continued its recovery from oversold conditions, moving higher for a second day versus the US dollar. GBP/USD soared over 100 pips to make an intraday high above 1.54.
Speculation of stimulus in China coupled with a higher close in Shanghai proved enough to spark another leg higher in the Australian dollar. AUD/USD touched back on 0.70 after having closed beneath it on Friday.
The euro was unmoved by more positive German trade data, trading slightly higher against the dollar and lower versus the British pound.
Commodities
Oil prices were higher on Tuesday, rebounding off September’s low. General risk-on sentiment that spurred demand for stocks and weakness in the US dollar helped Brent crude move back through $49 per barrel.
In signs of a switch out of its recent role as a safe-haven, gold traded up with most commodities on dollar-weakness despite a rally in stocks indicating a more risk-on environment.
A higher close in Chinese stocks allowed base metals including copper to trade higher on Tuesday.
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