UK & Europe
Another volatile day for oil markets yesterday meant an unsettled recovery attempt in stock markets after an improvement in Chinese exports was offset by poorly-received oil inventories data.
Fears over China’s imminent implosion were reined in a little further following the better than expected export data. The positive reaction in markets is probably just relief over the Chinese economy rather than any implication from the data that authorities will now slowdown the devaluation of the yuan. The yuan devaluation seems to have helped Chinese exports so, if anything could encourage authorities to continue the strategy.
The reaction inside China was another round of selling but with European markets rising, it has become increasingly clear that developed markets have not been reacting to the fall in Chinese stocks so much as the depreciating yuan. Even if Chinese stocks dropped another 20% but the yuan holds its value, the negative impact on international markets could be minimal.
The FTSE 100 briefly regained 6000 underpinned by a rally in shares of BP (L:BP) and Shire (L:SHP) which outlined its planned cost-savings through its deal with Baxalta (N:BXLT) which is expected to happen tax-free.
Shares of Sainsbury (L:SBRY) fell after the supermarket topped sales estimates but at the same time hinted at a higher bid for Home Retail (L:HOME) when it released a strategic plan for its proposed takeover. Sainsbury’s CFO John Rogers has said “it’s not a must do deal.” If Sainsbury’s does want to pull it off then it may have to pay almost half again as much as its first offer. An extra £500m on top of the purchase price would make a deal much more risky for shareholders at a time when the supermarket is leading the fight back against discounters Aldi and Lidl.
US
US stocks opened higher on Wednesday and sentiment continues to improve in the wake of the last week’s sell-off. Sentiment has been buoyed by a positive surprise in Chinese trade data and stability in the country’s currency.
Shares of Netflix (O:NFLX) were underperforming the tech sector with shares falling over 4.5% ahead of the streaming company’s earnings release next Tuesday. There is rising concern that Netflix is spending too much on its original content compared to the likes of HBO and it’s international expansion will take years to turn profitable.
FX
The movement in the FX market on Wednesday was very much swayed by the oil price with commodity-currencies including the Norwegian krone and Australian dollar top risers. The Japanese yen and Swiss franc were top fallers as investors continue to unwind safe-haven positions as equity markets recover.
The PBOC intervening to buy offshore yuan to reduce the gap with the tightly-controlled onshore rate has put off investors selling the yuan in anticipation of a quicker depreciation. This has led to another stable fix with minimal spread between onshore and offshore exchange rates.
The British pound continued to look soft below 1.45 to the dollar over dovish expectations for the Bank of England rate decision on Thursday.
Commodities
In another volatile day, oil prices jumped over 3% before falling as much as 1% following a smaller than expected build in crude oil inventories according to the IEA. The smaller build is price-positive but the rise in inventories upstream matched those seen in the API figures and suggests refined products are not seeing sufficient demand.
There was not much movement in the price of gold in a sign that the sharp drop this week is losing some momentum.
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.