Originally published by CMC Markets
Stocks have ticked up although traders remain nervous about the state of global trading relations.
Europe
China have been making life tricky for the US, and now the ball is in President Trump’s court. Dealers know full well what sort of reaction we could see from Mr Trump, and some are in wait and see mode.
Zara’s owner, Inditex (MC:ITX), posted a 1.4% rise in first-half net profit and confirmed that like-for-like sales rose by 3%. The group issued an optimistic outlook as it predicts a 4-6% increase in comparable sales in the second-half. The European fashion house has been hit by the fall in the Turkish lira and the Russian ruble. Sales continues to be strong, but margins have been falling in recent quarters and there are concerns that lower prices and higher costs are hurting the business.
SSE (LON:SSE) shares have fallen after the company warned that profit would be half that of a year ago. The company blamed lower renewables production, a fall in consumption and high energy costs for the earnings warning. The share price has been in decline since May 2015, and this morning it fell to its lowest level since 2010, and if the bearish move continues it could target 1,100p.
Hermes (PA:HRMS) revealed record first-half profits thanks to continued strong growth in China. Recurring operating income ticked up by 0.2% to 34.5% of sales, while analysts were expecting 34.4%. It would appear that the luxury end of the fashion market is performing well, probably because the world’s mega rich have seen their wealth grow considerably in recent years. The cooling of the Chinese economy has some traders worried that the good times might be coming to an end in Far East.
Dunelm (LON:DNLM) shares are in demand after the company reported full-year profit that was broadly flat on the year. The company took a charge of £8.9 million in relation to the integration of Worldstores. The group has had a total cash outlay of £30 million regarding Worldstores. The firm saw store like-for-like sale growth of 1%, while online sales jumped by 38%. The company will need to ramp up its online sales as the high street retail environment is ‘challenging’.
US
Stocks have had a muted start to the session as the stand-off between the US and China over trade is still ongoing. Traders wait with bated breath as the trade spat rumbles on. Investors are half-expecting a reaction from President Trump, and some traders are happy to sit on the side-lines until there is a response from the President. Elsewhere, Ildefonso Guajardo, Mexico’s economy minister believes there is a ‘high chance’ that the US and Canada will reach a trade deal.
The Beige book will be released at 7pm (UK) and given the impressive economic announcements from the US lately, traders are anticipating an optimistic update. The report should set the tone for the Federal Reserve meeting at the end of the month In light of the solid non-farm payrolls report and the boost to average earnings, there is increased speculation of a rate hike this month and in December. Dealers will be trying to decipher how hawkish the Fed will be.
Apple (NASDAQ:AAPL) will be in focus today as the company is hosting an event and market participants are expecting the announcement of a new iPhone and upgrades to other products. Given Apples size, any big moves could impact the indices.
PPI fell from 3.3% in July to 2.8% in August, while economists were expecting 3.2% The PPI reading that excludes food and energy slipped to 2.3% from 2.7%, and these reports underline a cooling in demand which isn’t great news for the economy.
FX
The US dollar index is lower on the session on the back of the PPI update, and traders will be waiting for Beige book update later on The greenback has experienced low volatility in recent sessions but it still in the wider update that began earlier this year.
EUR/USD has been helped by the dip in the US dollar and that offset the disappointing eurozone PPI report. In July, the annual PPI rate dropped to -0.1%, and the June report was revised to 2.3% from 2.5%. The figures point to weaker demand, and this does not bode well for the European Central Bank – who will announce their interest rate decision tomorrow.
GBP/USD has edged lower again due to ongoing uncertainty surrounding Brexit. The European Research Group – a pro-Brexit organisation, said a physical border on the island of Ireland can be avoided by using technology. The infighting of the Troy party has left some traders wondering if Mrs May is safe in the top job. While the political uncertainty lingers, the pound is likely to remain under pressure.
Commodities
Gold has lost some ground again and the metal continues to experience low volatility. Yesterday, the commodity fell to its lowest level in over two weeks, and that fits in with the wider bearish move that has been in play since April. While gold remains below the $1,200 mark the downward trend could persist.
Oil has been in high demand on Hurricane Florence is heading towards the US’s coast. The storm is expected to be the most powerful to target North and South Carolina in nearly 30 years. Traders fear supply lines will be disrupted. The Energy Information Administration report showed a 5.29 million barrel decline in US stockpile and that added to the upward move.