Europe
Trading was fairly skittish today with investor’s seemingly ready to give up positions at the slightest sign of danger, still nervous after the large declines seen last week stemming from Russian sanctions and the possibility of Fed tightening.
European stocks undid early gains after it emerged that the spillover from Banco Espirito Santo (LISBON:BES)'s demise had its first victim in the form of Credit Agricole (PARIS:CAGR) which formerly suffered from exposures in Greece and Spain during the European debt crisis.
The FTSE 100 pushed up to yesterday’s high on better than expected earnings from Aggreko (LONDON:AGGK) just above 6,710 but failed to break higher after news an RAF fighter jet tracked a passenger flight into Manchester airport.
China was dominating car-maker news. Shares in Fiat (MILAN:FIA) got suspended after falling 7% on a rumour of a Chinese competition probe of Chrysler which is owned by Fiat. (XETRA:BMW) reported a 26% jump in profits aided by strong sales in China.
Service PMI’s were the main data points with the most notable results being a miss from Italy dropping to 52.8 and a beat from the UK hitting 59.1. The UK has seen 19 straight months of service sector expansion above the 50 level and the composite PMI hit a 3-month high.
Inflationary signals were mixed in the UK data, while output prices in the service sector remained flat, wages were cited as one of the leading input cost pressures by purchasing managers. If the wage growth cited by the service PMI pre-empts an increase in earnings growth over the next few months then chances of a BOE rate hike as early as this year increase slightly.
US
Recent systemic and geopolitical threats have not escalated since last week but disappointing China service sector data released overnight put a dampener on global growth prospects and US markets traded in the red early in the session.
July marked a bit of shift in China’s economy, the services sector held up pretty well during the downturn earlier this year but has begun to shrink back with today’s HSBC services PMI hitting 50.0 whilst the waning manufacturing sector posted its strongest growth in over 1 ½ years as global demand picked up.
The ISM non-manufacturing PMI jumped over 2 points beyond expectations to 58.7. The initial reaction to sell-off stocks after the strong ISM data was a testament to current sentiment; good data supports a Fed rate hike and that’s not good for stocks.
Coach (NYSE:COH) was the top performer in the S&P 500 in early trading after increasing international sales helped beat revenue estimates. Both sales and revenue are still substantially lower than results a year earlier as the company loses out domestically to the likes of luxury handbag competitor Michael Kors (NYSE:KORS).
FX
Speculation that the Fed will raise rates sooner than expected has pushed the dollar higher across the board which continued again today.
European economic data was mixed; there was a slight miss on the PMIs but retail sales growth met expectations; neither proved enough to keep EUR/USD above 1.34. Continuing weak data in Europe including ongoing low inflation may prompt asset purchases from the ECB in the coming months which would devalue the euro
Even the pound which saw the UK easily surpass service PMI expectations of 58.1 with 59.1 traded around break-even as the US dollar strengthened.
Commodities
Gold and Silver lost out again against a backdrop of dollar strength. Silver fell through the $20 per oz and the 50% retracement of its June rally.
Crude Oil prices continued their downtrend today as export data demonstrated weak Asian demand. Brent Oil had rebounded to above $105 per barrel but a move back towards yesterday’s low at $104 seems on the cards. Likewise WTI’s move to 99 looks short-lived with another drop to 98 possible.
Copper got pummelled on the feeble Chinese non-manufacturing PMI data, the industrial metal has been holding above $3.20 per lb but may lose it today.
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