UK and Europe
European shares were lower on Tuesday, with banks leading the decliners for a second day over rising scepticism of the weekend’s stress test results.
A heavily signposted fiscal stimulus package announced in Japan underwhelmed investors who until recently thought the country may introduce so-called “helicopter money”. The disappointment was on display through to a stronger Japanese yen, with USD/JPY slumping to 101 and higher JGB yields. The reduced scope for monetary stimulus from the BOJ fed through to other areas of the bond market, with yields on gilts, treasuries and bunds all substantially higher.
The pickup in oil prices and a jump in sterling helped the FTSE 100 recover some of its losses in the afternoon, though banks remained the biggest drag.
Oil prices rebounded from bear market territory, with WTI crude recovering the $40 per barrel mark. This softened the blow on the energy sector, though oil majors BP (LON:BP) and Royal Dutch Shell (LON:RDSa) were still down on the day.
Data showing construction output fell at its fastest pace since June 2009 and a Brexit warning from building supplier Travis Perkins (LON:TPK) had sent homebuilders lower, but by afternoon shares of Taylor Wimpey (LON:TW) were amongst the top performers.
Direct Line Insurance (LON:DLGD) shares rose over 11% after the firm reported a smaller-than-expected fall in first-half earnings and announced a special dividend of 10p per share.
Germany’s Commerzbank (DE:CBKG) was amongst the worst performing banks after it replaced its annual profit target by forecasting a loss. The share price decline this year in Deutsche Bank (DE:DBKGn) and Credit Suisse (SIX:CSGN) has been so severe that both banks have been demoted from the Euro Stoxx 50 index.
US
US stocks opened lower amid a slide in European and Asian markets, though a rebound in oil prices limited the damage.
Health care and auto shares were in focus amid vehicle sales data and corporate earnings. Shares of Procter & Gamble (NYSE:PG), Pfizer (NYSE:PFE), CVS (LON:CVSG) and Aetna (NYSE:AET) rose after beating earnings estimates for the second quarter. Shares of Ford (NYSE:F), General Motors (NYSE:GM) and Fiat Chrysler (NYSE:FCAM) all dropped sharply after reporting disappointing sales volumes.
FX
The US dollar was lower across the board on Tuesday as expectations of a September rate hike continue to fade following last week’s poor GDP data. US data released on Tuesday was mixed, with core PCE inflation stuck at 1.6% y/y whilst spending rose more than expected but personal income missed expectations.
The Australian dollar rose as traders forecast the Reserve Bank of Australia would stay on hold after cutting rates to a record low of 1.5%. The Australian dollar erased early losses in response to the rate cut in another sign of investors questioning the efficacy of central bank stimulus.
The Japanese yen was higher following investor dissatisfaction at a Japanese fiscal stimulus package worth $274bn. The government’s emphasis on fiscal stimulus dampens the chance of further easing from the Bank of Japan following an underwhelming decision to buy more ETFs at its meeting last week.
Commodities
A drop in the dollar and optimistic guidance from gold-miner Fresnillo (LON:FRES) helped precious metal prices rise back to within spitting distance of yearly peaks. Gold topped $1360 per oz and silver was on course for its highest close this year as the dollar index fell to a five-week low.
Oil prices rebounded from bear market territory with WTI crude recovering the $40 per barrel mark. Traders are awaiting the latest US inventory data to justify a move below $40 on WTI. WTI at $38 and Brent at $40 would mark a 50% retracement of the gains from the low this year and could be a target for short-sellers.
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