UK & Europe
Dismay that the European Central Bank didn’t even discuss adding extra stimulus at its latest policy meeting sent European stocks into an afternoon tailspin.
Stocks had risen in early trading in the belief that the ECB may be able to surpass low expectations with at least some hint of future stimulus. These hopes were quickly dashed. ECB president Draghi left those expecting some imminent change to ECB policy with little to hang their hat on.
Inaction from the ECB brought about a slump in global risk assets including the FTSE 100, which give up its early gains. Micro Focus had led the early charge higher when its shares surged on merger news whilst mining companies gained on signs of stronger export growth in China.
Micro Focus gained over 20% on news it will merge with some of the spun-off software assets of Hewlett Packard Enterprise in a deal worth $8.8bn. No sooner has the UK lost a technology giant with ARM selling out to Softbank, it has gained a new one. Although the assets are not all new to the UK since they were formerly owned by Autonomy before being taken over by HP.
The initial positive reaction across every sector of the FTSE 100 to the Micro Focus deal was because it’s a good sign for the continued growth of UK business and technology post-Brexit. British firms still have the confidence to buy overseas assets despite the drop in Sterling.
Chinese exports fell just -2.8% y/y with imports gaining 1.5% y/y. The data is not wildly positive but just a sign that China’s economy is a bit more ‘steady as it goes.’ The lack of volatility in China’s economic performance is welcome. Import growth is a good sign for miners like Rio Tinto (LON:RIO) and Anglo American (LON:AAL), both top risers on the FTSE, which are heavily dependent on Chinese demand for commodities.
A big upward surprise in RICs house price data has supported homebuilding shares which dipped after results from Barratt in the previous session.
Dixons Carphone (LON:DC) shares rose over 3% after well-received results, which dampened fears of an immediate negative Brexit effect on the retailer’s profits.
US
US stocks opened in the red, matching the direction (but not to the same extent) of European markets after the ECB kept interest rates and other monetary policy measure unchanged at it September meeting.
International markets tend to rise and fall together on news of central bank stimulus, though the weaker dollar as a result of euro strength is positive for multinationals within the Dow and S&P 500.
Shares of Liberty Media dropped after it announced it would acquire Formula One racing from private equity firm CVC Capital for $4.4bn.
Hewlett Packard Enterprise shares fell slightly after it missed quarterly revenue estimates but offered upbeat guidance for the current quarter and announced it would spin off non-core software assets to the UK’s Micro Focus.
FX
The euro rose on Thursday after European Central Bank kept policy on hold in its first meeting since the Bank of England eased policy in August in response to concerns over Brexit.
There was a belief in some corners that the ECB could decide it wants to add stimulus in equal measure to the Bank of England to defend the Eurozone from any unwanted economic consequences of Brexit. Failing that, there was also some opportunity to hint at more stimulus down the road through lower revisions to economic forecasts. As it happened forecasts were only slightly lowered and ECB president Draghi said there had been no discussion of changing the asset purchase program.
There was some scope for the European Central Bank to extend the end date of asset purchases or change the composition of those purchases. Neither of these happened, which was not a big surprise, but there was evident dismay in markets that according to Mr Draghi, they were not even discussed.
Commodities
The reaction in precious metal markets to the ECB was relatively muted, with gold and silver both slightly lower. Weakness in the US dollar was offset by signs that global central banks are stepping back out of the rabbit hole of extraordinary monetary policy.
Oil markets were flat with traders waiting with baited breath to see if official DOE weekly inventories were anywhere close to the 12 million barrel drawdown according to the API.
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