CMC Markets | Dec 16, 2014 19:34
Shares in Europe saw a mild recovery on Tuesday shaking off concerns of further Oil price depreciation thanks to a record trade surplus for the Eurozone as well as an improved manufacturing and services industry outlook.
Volatility shifted from equities to the FX markets where the Russian rouble crashed as much as 20% to new lows against major currencies.
ECB policy is bearing some fruit via the Eurozone trade surplus. The weaker euro made European exports relatively cheaper abroad while imports became relatively more expensive to Europeans. Europe is an oil-importer so the lower oil prices also reduced the cost of one the continents biggest imports.
Eurozone composite PMI surprised to the upside with both manufacturing and services showing improvements on the previous month. The rise is certainly better than the falls recently seen but the data still suggests weak to negative growth in the Eurozone for the fourth quarter. It was actually France that provided a good amount of the upside surprise. Germany missed PMI expectations which is of concern.
In the UK, most banking stocks came through the results of the BOE bank stress tests unscathed with all the top banks passing with the exception of The Co-operative bank.
Supermarkets Tesco and Morrison(Wm.)Supermarkets (LONDON:MRW) brushed off new Kantar data suggesting further lost market share in the last twelve weeks. Sainsbury(J) (LONDON:SBRY) was the sole faller undoing recent gains from possible activist investor interest.
Shares in BT Group (LONDON:BT) were higher after it confirmed it will buy EE, the UK’s largest mobile phone operator. Investors appear to be cheering the move even though they will be paying for a good amount of the deal. The deal will potentially be part-funded by a rights issue since Deutsche Telekom AG Na (XETRA:DTEGn) and Orange SA (NYSE:ORAN) will only be taking partial payment through stakes in BT.
US markets slipped lower in morning trading; it was financial shares tugging at the bottom of the Dow 30 with JPMorgan Chase & Co (XETRA:JPM), Goldman Sachs Group Inc (NYSE:GS) and American Express Company (NYSE:AXP) all lower. Symbolically it was Boeing Company (LONDON:BOEB) and 3M Company (NYSE:MMM) who both boosted their divided with the former initiating another share buyback who topped the benchmark US index.
It is the strengthening US dollar over the past few months that has in part led to the extreme volatility seen in oil, emerging market stock indices and currencies and it boomeranged back into US markets today as risk-aversion took hold.
Shares in Google Inc (NASDAQ:GOOGL) were trading over 1.5% lower after it was revealed the internet giant is facing increasing European headwinds, this time at the hands of a Dutch privacy watchdog looking to levy a €15bn euro fine. The fact is that Google do push the boundaries on privacy that will face increasing resistance from users and regulators, especially from cash-strapped European governments hampered by weak growth.
If Microsoft Corporation (NASDAQ:MSFT)’s difficulties at the hands of the EU are anything to go by, Google will face prolonged legal wrangles but should be able to come out ok the other side. The risk is that if enough of these fines crop up, that may be enough to knock down earnings growth from quarter to quarter enough to cause shorter term investors to sell-out.
The US Dollar fell against most major counterparts today as the Japanese yen gained on safe-haven buying after the BOJ-induced rally petered out at 122 and the euro built on recent momentum after the strong PMI data regaining 1.25.
It was the Russian rouble that stood out on its own for the largest price swings. The currency initially gained 8% after the Central Bank of Russia increased interest rates by 65 basis points. Market forces then overwhelmed the action as oil prices sank further.
USD/RUB swiftly ran up to as high as a 20% gain before paring back on the news the central bank has more action planned.
With monetary policy failing there is now a distinct risk of authorities introducing capital controls to control the outflow of currency. Capital controls would go against the Russian policy of moving toward greater transparency that had seen the central bank move to a freely floating currency as recently as November.
Oil prices set new 5 ½ year lows as both Brent and WTI traded lower. The oil market is in free-fall so $50 for WTI may only be a couple of days away.
Gold saw modest safe-haven flows but was being pressured by the wider sell-off in the commodity complex. Gold traded back below $1200 yesterday and in doing so may have wiped out a lot of the positive sentiment building up towards the metal.
Copper declined on the lower global demand outlook implied by contraction territory in Chinese manufacturing PMI data.
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Written By: CMC Markets
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