Europe
Trading was more positive in Europe today; after a two-day pullback stocks looked to continue the momentum started by the Bank of Japan at the end of last week as US elections finished without too much fanfare
European service sector data painted a well-known picture of weakness in Europe but the surprise came from the UK whose service sector appears headed in the same direction, nevertheless earnings from Marks & Spencer (LONDON:MKS) impressed aiding the FTSE 100.
Germany narrowly missed services PMI expectations while France and Italy beat expectations in October leaving the overall Eurozone number slightly down from September. The French PMI was still lower despite beating expectations and even though Italy saw some improvement it was thanks to increased effort on works outstanding. All three countries saw a drop in new orders which implies output growth may drop in the coming months
It was the rising US Dollar and crashing commodity prices that were again dominating trading with Gold falling over $20 per oz which took the shine off gold mining shares Randgold Resources (LONDON:RRS) and Fresnillo (LONDON:FRES).
The actions from the Bank of Japan and the ECB to ease credit conditions stand in stark contrast with the prospect of tightening credit from the US Federal Reserve and its sending the US dollar flying.
Unfortunately the benefits of the rising dollar and falling euro is yet to benefit Europe’s exporters and inflation is still low because of the falling oil prices.
Marks and Spencer impressed investors by raising its dividend thanks to unexpected higher profits in its half-year report with better margins in its much-maligned clothing business.
Associated British Foods (LONDON:ABF) climbed thanks to ongoing strength at Primark who’s sales reportedly rose sharply in September even though rival Next (LONDON:NXT) pointed to slower sales thanks to the warner Autumn.
US
A Republican congress was being taken well in early US trading as the Dow Jones made new all-time intraday highs aided by good earnings from big media companies and unemployment data suggesting the October non-farm payrolls might be another big one.
Republicans benefitted from discontent with President Obama; despite the economic recovery, many Americans are not feeling the benefits thanks to policies that have presided over rising income inequality.
The stock market has been a prime beneficiary of the kind of policies or lack thereof that has seen American wages stagnate while corporate profits surge. So even though the Democratic Party has been great for making the rich richer, the Republicans are traditionally even better at doing so.
The ADP unemployment report showed 230K jobs created in October over expectations of 220K while the ISM Non-manufacturing data slipped to 57.1 from 58.6 last month.
The ADP and ISM reports are more evidence that the US labour market is improving but the low paid jobs being created are not spurring on activity in the rest of the economy.
Twenty-First Century Fox Inc (NASDAQ:FOX) reported higher revenue growth over the same quarter last year but saw a drop in profits while its failed takeover target and rival media company Time Warner (NYSE:TWX) reported better than expected revenue and profits and raised its 2014 forecast.
FX
The US dollar gained from some political certainty after US elections concluded on Wednesday with a clear victory for the Republican party ahead of what could potentially be more monetary easing from the European Central Bank tomorrow.
USD/JPY made new seven-year highs today to just short of 115, a target many had in mind prior to the latest stimulus effort from the Bank of Japan. As a big psychological level it may provide a barrier to prices in the near term but since the latest BOJ measures, the chance of 120 being reached in the next few months has improved significantly.
AUD/USD fell to four-year lows down 2% on Wednesday thanks to disappointing Chinese trade data and falling gold prices with both likely impacting demand and prices paid for Australian metal and mineral exports.
Commodities
The price of Gold broke decisively through interim support at $1,160 and has now settled at $1,140. Since falling below $1,220 the trend appears to be characterised by sudden $20 drops before consolidating. The fundamental reason for the weakness in gold, namely the prospect of higher interest rates in the US has not changed. The timing of each sudden plunge in gold prices is highly correlated with moves higher in the US dollar.
Oil prices rose on Wednesday thanks to a surprise drop in EIA crude oil stocks but the pop higher should still be seen in the context of the total collapse in prices seen this month.
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