UK & Europe
Numerous red alerts across China markets and a plunge in automotive stocks weighed on European stock markets on Thursday while the ongoing volatile downturn in oil prices swung from negative to positive catalyst throughout the day.
French authorities have raided Renault (PA:RENA) factories in France as part of an investigation into emissions technology, sending Renault shares plunging much as 20% with other automakers including Italy’s Fiat Chrysler down as much as 9%. The extent of the carmaker share price falls goes to show how much of a sensitive issue emissions are for shareholders. Investors still have this lingering question, Why would VW cheat emissions to achieve average industry standards for emissions unless everybody else is doing the same?
The Shanghai Composite fell below the lows reached in August, Hong-Kong listed H shares fell to the lowest since 2011 and Chinese government bond yields fell to the lowest since data began in 2007.
A strong Christmas performance from Tesco (L:TSCO) has not been enough to counter a wave of fear striking the FTSE 100 as oil prices slumped and travel stocks were sold off following terrorist attacks in Jakarta.
Tesco was topping the UK benchmark, rising over 5% on Thursday after the supermarket saw a surprise rise in sales over Christmas. The 1.3% like-for-like sales growth in the six week until January 9 is a great result considering the city was eying more like a 2.5% drop.
Having just touched 18-year lows, Tesco shares could see some relief from here after doing well over Christmas. A -1.5% sales decline over the third quarter ending in November also beat expectations but serves to illustrate the difficult competitive environment the supermarket finds itself in. As the UK’s biggest grocer, Tesco has the most to lose amongst rising competition from discounters Aldi and Lidl, Amazon (O:AMZN) food delivery and the rest of the Big Four fighting back.
Shares of Home Retail Group jumped over 2.5%, adding to rapid gains over the past few weeks after the company announced it is in advanced talks to sell Homebase to Australian DIY chain Westfarmers for £340m. Sainsbury’s has said it is planning a second a bid for Home Retail Group but since its Argos and not Homebase the supermarket is after, management might decide to wait for the Westfarmers transaction to go through. Home Retail’s Christmas sales performance was divided across the two retailers. Argos saw same-store sales fall 2.2pc over the 18 weeks to 2 January while at Homebase, like-for-like sales rose 5%.
US
US stocks dropped in early trading before rebounding alongside the price of oil. Previously popular high-flying growth companies including Twitter (N:TWTR), GoPro, Yelp and FitBit tanked. Given the turbulent environment US investors are dumping riskier holdings in case of disappointing earnings during reporting season.
GoPro shares lost 20% of their value on Thursday, adding to a 27% slide on Wednesday when the camera-maker announced it was cutting 7% of its workforce and issued a profit warning.
FX
The US dollar was mostly lower on Thursday while commodity currencies swung around wildly with the price of oil. The New Zealand dollar dived over 1% before recovering.
The Chinese onshore Chinse yuan remained essentially unchanged again but the offshore Chinese yuan fell despite the PBOC setting a higher fix for the onshore rate as traders bet on future depreciation.
The PBOC is trying to put off hedge funds from selling the yuan but capital outflows for 10 straight months through November according to Bloomberg estimates indicate direction the currency is eventually headed lower so bigger funds with deep pockets are just selling into these short squeezes.
The British pound erased earlier losses against the dollar after Ian McCafferty again voted for a rate hike, leaving the overall vote count at 8-1 in favour of leaving rates unchanged. Mr McCafferty appears to be maintaining his stance of wanting to get out in front of higher potential inflation down the line.
Commodities
Brent crude oil dipped below $30 p/b for the first time since 2004 after poorly-received US inventories data added to jitters following reports that suggested a quicker than expected lifting of Iranian sanctions. Iran has been vocal about its plans to open up the floodgates for its oil exports once the sanctions are lifted, so much so that OPEC could not reach an agreement on output quotas at its last meeting.
Gold prices slipped over $10 per oz, coming close to erasing all yesterday’s gains.
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