Originally published by CMC Markets
Europe
European shares look set to finish a fairly turbulent week on a mixed note and at slightly higher levels to where they ended last week, potentially calling a pause to three successive weeks of declines.
Concerns about rising interest rates, trade, and geopolitics from Italy and now Saudi Arabia are serving to keep investors a little cautious of loading up on significant amounts of fresh risk ahead of the weekend.
As if to emphasise the risks of all this volatility the FTSE MIB has rebounded into positive territory on comments from European Commission economic affairs commissioner Pierre Moscovici who said that Italy’s deficit of 2.4% wasn’t the main problem, it was more to do with measures to deal with the overall debt pile and measures to boost growth.
This more emollient tone appears to have been interpreted as a sign that the European Commission is trying to adopt a more conciliatory approach in an effort to head off a confrontation which neither side can afford to get out of hand. Italian yields slipped back sharply on the back of this and are now lower on the day, after hitting four year highs at 3.8% earlier this morning.
German automakers have weighed on the DAX after Daimler (DE:DAIGn) issued yet another profits warning, the third this year saying it expected to see significantly lower EBIT for 2018.
Airline shares have hit further turbulence with EasyJet (LON:EZJ) shares hitting an eighteen month low on a broker downgrade have hit an air pocket after a sector broker downgrade, with higher fuel costs and weaker demand being cited as reasons for significant hits margins in the weeks and months ahead.
British Airways owner International Consolidated Airlines shares have followed suit, also hitting 18 month lows, while German carrier Lufthansa (DE:LHAG) has also dropped sharply.
In other company news it’s been a big day for hotels with Accor (PA:ACCP) and InterContinental Hotels (LON:IHG) updating the markets. Accor, who own Ibis, Swissotel and Sofitel brands reported that RevPar (revenue per room) increased by 5.9%, up from 4.3% expected, while the company also raised its guidance.
InterContinental Hotels, owners of Holiday Inn and Crowne Plaza also showed decent increases in Q3 (RevPar) of 2.5% across EMEA with year to date (RevPar) of 2.7%, along with a special dividend of $500m. The main downside was a slowdown in the US where revenue per room was flat, probably due to hurricane related factors, while China revenue rose 4.8%. Investors appear to have been underwhelmed by the update, shrugging off the special dividend, and sending the shares to one year lows.
On the upside Unilever (LON:ULVR) shares have shrugged off yesterday’s declines, pushing up to one week highs, with some of these gains coming on the back of a decent update from US sector peer Proctor and Gamble, who posted their best numbers in five years, helped by a decent performance in beauty and health care. Reckitt Benckiser shares have also pushed higher as well
US
US markets opened higher after yesterday’s heavy falls helped once more by some decent announcements from the corporate sector, given recent volatility the markets may well struggle to post any sort of significant gains for this week.
Consumer products giant Proctor and Gamble latest numbers appear to show that there’s profits in household goods and health and beauty as Q1 profits came in better than expected at $1.12c a share, above expectations of $1.08c on net revenues which rose 4% with decent improvements across all their product ranges. The company also maintained its full year guidance.
US multinational Honeywell International (NYSE:HON) is also lending a tail wind to US stocks after reporting a better than expected Q3 earnings, which showed sales in line with expectations of $10.76bn, along with headline EPS of $2.03, above estimates of $1.99c. The gains were driven by its aerospace and energy divisions, though we might see some of the enthusiasm tempered by the fact that management downgraded their expectations for the rest of the year.
Facebook (NASDAQ:FB) is also in the news after it was announced that ex Deputy Prime Minster Nick Clegg was being appointed as their next Head of Global Communications starting next year. While some have questioned the logic behind the hire it does make sense given recent regulatory problems with the EU. Hiring an ex-MEP with the inside track on the EU, and who knows all the right people to lobby.
Rising US rates continue to weigh on US existing home sales, declining 3.4% in September, though the hurricane season may well have also played a part.
FX
The Canadian dollar has been amongst the worst performers after a disappointing retail sales and inflation report.
Today’s disappointing CPI and retail sales numbers may sow some seeds of doubt in the markets belief that the Bank of Canada is set raise rates next week when they meet to discuss interest rates.
A decline in August retail sales of 0.4%, along with a monthly decline in September CPI of a similar amount would appear to suggest that Canadian consumers are slowing down on spending. The decline in the headline CPI number while welcome is more noteworthy given that we saw a fall from 2.8% to 2.2% which would appear to show that this year’s previous rate hikes are now starting to trickle down.
The bigger question is whether it will be enough to give the Bank of Canada pause next week, and for this we probably need to look at the core CPI rate, and here prices have barely moved all year, currently at 1.9%, still just below 8 year highs.
For this reason it seems unlikely that the Bank of Canada will hold off from another 25 bps rate increase, and the move in the Canadian dollar towards the 1.3100 level would appear to reflect that.
Given the amount of negative Brexit headlines this week the pound hasn’t performed too badly this week. It is modestly lower against most of its peers however given the fact that mutterings of a “no deal” outcome have increased it has held up rather well, probably as a result of more encouraging economic data. This reinforces the perception that the pound is trading at a significant political discount due to the antics of our esteemed politicians.
Commodities
Oil prices have rebounded after two successive days of declines but still look set to close lower for the second week in a row, as concerns about demand have continued to rise. The prospect of some form of sanction against Saudi Arabia is probably helping to limit the downside in the short term, but geopolitics aside the oil price does look vulnerable to further losses.
In a sign that investors are becoming more cautious gold prices look set to close higher for the third week in a row, despite a US dollar that remains fairly strong and rising US yields. This resilience is telling and suggests that markets are starting to diversify some of their risk in the event of further stock market turbulence.