Equities
After a registering a small decline in November, European stocks started December in similarly sombre spirits, with the FTSE 100 falling over 1%.
The oil and gas sector was the only riser on the FTSE with both BP (LON:BP) and Shell (LON:RDSa) rising over 3% as Brent crude oil topped $52 per barrel, its highest since mid-October.
Every other sector on the FTSE 100 was in the red as attention shifts to risks posed by this weekend’s referendum in Italy. Data showing Italy’s economy grew 0.3% q/q in the third quarter is probably not going to move the dial. The referendum has turned into a vote on the popularity of (or lack thereof) Prime Minister Matteo Renzi.
Telecoms shares BT and Vodafone (LON:VOD) fell after Ofcom announced a review into landline charges. The phone companies could be about to lose some of the more lucrative landline fees if it’s shown they disproportionately hit pensioners more reliant on a landline.
Consumer goods stocks were worst performers after data showing higher manufacturing input costs. The concern is firms will eat the higher costs, at the expense of profits to offer competitive prices over Christmas.
Mining company shares fell after China manufacturing data for November dipped slightly on last month’s figures but came in a head of expectations. Manufacturing in China is still expanding and continues an upwards trend that’s been in place for the last 12 months.
US stocks were mixed at the open as investors digest the gains in the oil market and its implications for the wider economy. Shares of Alphabet (NASDAQ:GOOGL) dipped over 1% following research from Check Point suggesting over 1m Android users have been hacked by apps using malware, though other tech firms saw similar declines.
FX
The British pound was top FX gainer following suggestions Britain could make contributions to the budget of the European Union to pay for single market access. Brexit secretary David Davis said in parliament inferred that if making some contribution to the budget meant getting the best deal for trade in goods and services then it would be considered. Markets may be getting a little ahead of themselves though. Davis’s answer to the question on paying into the budget was really just another wording for “all options are open,” something the government has said all along.
The pound was already firmer in reaction to rising manufacturing input costs that increase the odds of higher consumer prices next year. The Bank of England has said it will have “limited tolerance” for inflation above its 2% objective, suggesting a rate rise is sliding climbing back onto the table. The Sterling gains came in spite of UK manufacturing unexpectedly falling to 53.4, below the forecasted rise to 54.4. Of course, protests of Carney five pound notes had minimal impact on currency markets.
The euro traded higher after Eurozone manufacturing data struck its highest since January 2014 in November. EUR/USD rose back above 1.06 as unemployment fell to a 7-year low of 9.8%. At the same time, cost inflation hit a 56-month high. The Eurozone Markit Manufacturing PMI for November was 53.7. Gains weren’t evenly distributed across all of Europe though, Greek manufacturing saw its sharpest downturn in a year.
The US dollar pulled off its lows after data showed the manufacturing sector expand faster than expected in November. The November ISM manufacturing report came in above expectations at 53.2 from 51.9 in October.
Commodities
Oil prices gained over 4% on Thursday. Oil adding to Wednesday’s large gains tells you the market got what it wanted. OPEC delivered on its promised 1.2m barrel cut, even bringing Iraq on board to prove a strength and unity that many had doubted still existed. Still, it’s not over until the fat oil minister sings. Attention now turns to non-OPEC producers including Russia for the next meeting on December 9. There is still a modest risk of failure, but it appears quite likely that, assuming Russia cuts output by 300k, the remaining 300k barrels per day deficit will be filled by the likes of Mexico, Azerbaijan and some South American countries.
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