UK and Europe
European markets fell on Monday but finished well off the lows, tracking a U-turn in shares on Wall Street.
By late afternoon, the FTSE 100 was down -1.1%, having earlier been down as much as -1.5%. A poorly-received update from Primark-owner Associated British Foods (LON:ABF) saw investors send its shares to the bottom of the UK equity benchmark. Morrisons was best of a bad bunch, with its shares higher ahead of its results this week.
As interest-rate expectations shifted throughout the day, there was a change in leadership, or lack thereof across sectors. As expectations of a Fed rate rise in September unwound, bank shares dropped to the bottom of European indices.
The ongoing fallout from the reported indiscretions at the top of Lloyds (LON:LLOY) is seeing its shares come under pressure again. Several top shareholders are calling on the bank to put in place a succession plan for Antonio Horta Osorio.
Shares of Associated British Foods fell by as much as -11% after the firm reported falling bond yields had put its pension in to deficit and said like-for-like sales would drop -2% at Primark. The declines come despite the surge in sugar prices, which bolsters its sugar business and a drop in the pound, which helps the sales at Primark stores abroad.
US
US equity benchmarks pared extensive losses seen in futures markets to trade back into positive territory by early trading on Monday. The Dow Jones had been set continue Friday’s rout with a triple digit drop, but dip-buying traders erased the entire price drop and then some.
The sharp losses on Friday are being dismissed as simply a return to normal volatility levels, rather than a sea change and the beginning of major correction. The extraordinarily low volatility was always going to end abruptly. Before Friday, the S&P 500 had gone 43 days in a row without closing up or down 1%.
FX
FX markets went full circle on Monday with early US dollar strength, on the back of concerns of an imminent rate hike, returning to the general consensus-view that it won’t happen in September.
The trigger for the about turn were more neutral speeches given by Fed governors Lockhart and Kaskari. Kashkari, who is not a voting member, said “there doesn’t appear to be a huge urgency to do anything.” The Fed’s Leal Brainard gives her hotly anticipated speech after the close of European markets.
The British pound rose in afternoon trading as deputy Bank of England governor Minouche Shafik announce she was resigning in order to become director of the London School of Economics. Ms Shafik voted alongside governor Carney at every meeting and probably doesn’t move the dial much on future Bank of England policy decisions.
At the margins, with the committee clearly overwhelmingly dovish already, the stronger pound may reflect the bigger disturbance if Shafik’s replacement were to be a hawk.
Commodities
Largely driven by the US dollar and some oversold technical conditions, commodities mostly reversed early losses to turn positive in the afternoon. The price of copper pulled off its lowest level since June.
Crude oil rebounded with the improvement in risk-sentiment that saw equities recover and bond yields come down. The gains came in spite of reports from the IRNA that the National Iranian Oil Co is unable to raise production and exports of light crude oil. The delay in raising production, as well as any switch to focus on other oil grades, reduces the likelihood Iran will agree to any output freeze this month.
Disclaimer: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.