Originally published by CMC Markets
European equity markets are lower today on account of the continued trade tensions.
Europe
The latest batch of tariffs from the US and China kick in today, and this has dampened the mood. The Chinese government confirmed they will not re-engage in trade talks while the US continues to threaten them with additional tariffs. There is a growing sense that the trade spat will drag on, and this is weighing on sentiment.
Thomas Cook (LON:TCG) shares sold-off severely today after the firm issued a profit warning. The unusually warm summer in northern Europe hurt demand for holidays. In July, the group cautioned dealers that profit would be at the lower end of their forecast, and today’s update triggered a wave of selling. The company posted a 12% rise in bookings for the summer, but prices had to be trimmed by 5% in order to entice customers. The stock has been in a downtrend trend since May, and if the negative move continues it could target the 53p area.
Randgold Resources (LON:RRS) and Barrick Gold (NYSE:ABX) are in merger discussions, and if the transaction goes ahead it would create the largest gold producer in the world. The potentially new company would have a market capitalisation of $18 billion, which would mean there would be major room for synergies and trimming of costs. In 2018, the underlying gold price has fallen by over 8%, and that relatively weak gold price is a factor in the possible merger. It is more of a merger for survival rather than expansion, and if the underlying gold market was much stronger, the two firms may not be in merger talks.
Sky (LON:SKYB) has recommended to its shareholders that they should accept Comcast’s $40 billion takeover offer. It equates to a £17.28 per share, which comfortably exceeded Fox’s offer of £15.67. Sky’s board described the offer as ‘excellent’. Comcast (NASDAQ:CMCSA) is the largest broadband provider and cable operator in the US, and seeing as Sky has a large portion of the European broadband, pay-TV and phone sector, it would be a good fit.
US
Stocks are in the red as the heightened trade tensions between the US and China has hurt sentiment on Wall Street. The mood isn’t one of severe pessimism, but the near-term outlook isn’t great as the trade standoff between the US and China has gotten worse, and there is no end in slight as China won’t sit down with US while they threaten additional tariffs. President Trump is likely to keep his tough stance regarding trade as the mid-term elections are getting nearer. Should Mr Trump keep beating the ‘America first’ drum, he could help Republicans in the upcoming elections.
FX
EUR/USD has been given a boost by the weakness in the US and the stronger-than-expected German Ifo business climate update. The greenback has been weak in recent weeks and traders will be paying close attention to Federal Reserve meeting later this week. The German Ifo business report for September was 103.7, down from 103.9 in August, but economists were expecting a reading of 103.2. Mario Draghi, the head of the European Central Bank, said he expects inflation to rise as the labour market tightens, and this added to the bullish move.
GBP/USD has recouped some of the ground it lost on Friday after Prime Minister May made it clear she is willing to walk away from the EU talks if Brussels aren’t will to be negotiate in good faith. The fact that Mrs May reiterated that she feels ‘no deal is better than a bad deal’ spooked the market. Today, he Confederation of British Industry industrial order expectations report swung to -1, while the consensus estimate was 5. The poor figure failed to derail the pound’s positive move.
Commodities
Gold continues to experience low volatility and is hanging around the $1,200 mark. The dip in the US dollar has given the metal a little lift. In recent weeks the gold market has been lacklustre, and given that the Federal Reserve will announce their interest rate decision on Wednesday, it is likely the trading range will be low on the run up to the meeting.
Oil has surged today after major oil producers confirmed they will not be raising output. Last week, President Trump criticised OPEC and appealed to his allies in the Middle East to boost output in a bid it push prices lower. Mr Trump’s request fell on deaf ears. WTI hit its highest level since July, while Brent crude reached a level not seen since late 2014.