Europe
After such a busy last week, European markets were predictably lacklustre today and traded with a downward bias as concerns over China’s growth started to bite before the release of tomorrow’s manufacturing data with the FTSE 100 under extra pressure after Tesco (LONDON:TSCO) reportedly overstated its first half profits.
Shares in Tesco have been crushed following an accounting irregularity reported by new CEO Dave Lewis that reportedly overstated half-year profits by as much as £250,000.
Hopes of a turnaround at Tesco after prior CEO Phillip Clarke departed two months ago have been dashed. Lewis is not responsible and has seemingly acted on the front foot since learning of the news but wider questions are being asked of Clarke and the Board of Directors including Chairman Richard Broadbent.
The more immediate worry for investors than the resulting investigation is that this is the 3rd profit warning in two months for Tesco who in the last quarter lost almost 1.5% of market share particularly to discounters newcomers Aldi and Lidl.
The positive reaction by UK stock markets to the vote in Scotland is looking pretty short-lived but this is perhaps not surprising given the reversal that already took place in Sterling which saw a huge reversal of initial gains on Friday thanks to a renewed bout of dollar strength.
The FTSE 100 saw a sharp turnaround on Friday after briefly touching the psychological 6,900 level and is now pushing towards the bottom of its recent trading range around 6,750.
An expected drop in Chinese economic data can sometimes push markets higher if there is some expectation it could lead to economic stimulus but Finance Minister Lou Jiwei soon put hopes of government intervention to bed saying there will be no change in policy because of one economic indicator.
The fears of a slowdown in China despite the recent government stimulus efforts are sending the mining sector lower today on the FTSE100. Other supermarkets were feeling the heat today with Sainsbury(J) (LONDON:SBRY) and Morrison(Wm.)Supermarkets (LONDON:MRW) both down over 2%. The defensive utility sector was best performing with Scottish & Southern Energy Plc (LONDON:SSE) and National Grid (LONDON:NG) ahead.
US
The jubilation surrounding the listing of Chinese e-commerce site Alibaba Group Holdings Ltd (NYSE:BABA), the biggest IPO ever has not been able to translate to major benchmarks because its domicile outside the US prevents it listing on one. US stock finished flat on Friday and were rolling over in early trading at the start of the week ironically on China slowdown fears.
Alibaba’s underwriters are said to have increased the size of the IPO to a record $25bn, exceeding not only Visa Inc (NYSE:V) but also the Agricultural Bank Of China (HK:1288). After being sold at $68 shares eventually opened at $92, traded just shy of $100 before closing at $93.89. At the open of trading today shares in Alibaba have dropped to $90 and will need additional buyers to offset the dilution effect of more shares being sold.
There was clearly a lot of demand for one of the largest and hottest-growth stories in recent years. Founder Jack Ma’s concern of another ‘Facebook Inc (NASDAQ:FB)’ incident led to banker’s undervaluing the stock to avoid a sell-off on the first day, the result being a 38% boon to initial investors. The trouble now perhaps is that those who missed out on the primary offering won’t be so keen to buy in after such a big increase over the listing price and may await lower prices, perhaps in the $80 vicinity.
Expectations have been exceeded for the new model of iPhone sales after Apple Inc (NASDAQ:AAPL) sold more than 10m iPhone 6 models in the first weekend after its release. The iPhone is Apple's biggest earner and iPad sales have been tapering off so the news is good for future profitability.
FX
The US Dollar was mostly lower today but won out to commodity currencies on further drops in correlated commodities gold and crude oil.
Shares in New Zealand were higher after the national election result but NZD/USD traded lower trading just above February lows at 0.8050.
GBP/USD pulled back some of last week’s losses to retake 0.63 on the idea that sterling probably doesn’t deserve the kind of sell-off being seen in the euro or Japanese yen based on the strength of its economy.
Commodities
Gold traded down to $1,210, just shy of where it started the year as silver made new 4 year lows again today.
Crude Oil is seeing further losses below $100 in both major contracts extending the decline into 2 year lows.
Copper has been under pressure from the prospective weak China data and Finance Minister comments and is trading at its lowest levels since April.
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