UK & Europe
Early gains slipped away by the afternoon in Europe as investors booked gains at the end of a strong month for global equities.
Stronger than expected Eurozone inflation data has slightly undermined the case for further quantitative easing in December. There’s still a general belief that the ECB will do more in December but should inflation rise again in November, the policy shift could be a bit less aggressive. One possibility is a deposit rate cut rather than additional QE.
Weak company results weighed on the FTSE 100 with International Consolidated Airlines and RBS both underwhelming investors.
Despite beating third quarter earnings expectations IAG shares tanked to the bottom of the FTSE 100. The rise in full year earnings guidance was a bit conservative so it raises a question over the timing of introducing the dividend when Aer Lingus (IR:AERL) is not yet integrated.
It was another rough day for Britain’s banks thanks to Royal Bank of Scotland (L:RBS) missing third quarter earnings estimates. RBS missed pre-tax profits largely because of a steep rise in restructuring costs under CEO Ross McEwan’s turnaround plan. Shares dropped on the headline miss but net income has risen over the same period last year, RBS has successfully sold Citizens bank and provisions for legal settlements are well down which are all positives going forward.
US
Mixed corporate results, weak inflation data and the avoidance of a debt default and government shutdown saw US stocks mostly unmoved in morning trading.
The Core PCE price index, the measure of inflation favoured by the Federal Reserve slowed more than expected in October, making an FOMC rate-hike less likely in December. With today’s weak inflation print, if average earnings show no growth when reported next week, as much as the Fed might have indicated they want to tighten policy, the data won’t justify it and a December rate hike is probably toast.
Shares of Exxon (N:XOM) recovered early losses to edge into positive territory. Shares had initially dropped on the dramatic headline that profits nearly halved over the same period last year but recovered since the decline in profits was not as much as expected thanks to a doubling in the oil giant’s refining profits.
Chevron (N:CVX) profits dived for a fourth-straight quarter but losses in the share price were limited by the announcement of a further 7,000 job cuts aimed at reining in costs to manage the fall in the price of oil
FX
The dollar was down across the board on Friday on a combination of weak inflation data at home, stronger inflation data in Europe and no further easing in Japan. The hawkish rhetoric from the Fed counts for little when it is data-dependent and the data is getting weaker.
The yen gained against the dollar after the Bank of Japan refused to add to its existing stimulus at its monetary policy meeting. Gains were capped when BOJ governor Kuroda said he doesn’t see any barriers to more asset purchases. Kuroda’s comments were taken as a hint at further stimulus if inflation remains low. That said, a balance sheet already half the size of Japan’s GDP while buying all of the new issuance of JGBs would probably suggest there is a limit to the BOJs buying. USD/JPY is back inside its 118 – 122 range, falling below 121.
An unexpected rise in core Eurozone inflation as well as the expected move out of headline deflation in October helped the euro bounce for a second day. EUR/USD rose well above 1.10. The move out of deflation takes the heat off the ECB doing anything dramatic in December
Commodities
Metal prices fell for a third day as markets continue to price in Wednesday’s more hawkish Fed statement and a weaker economic growth target in China 6.5%. Oil prices were supported by earnings at oil majors reiterating capex cuts.
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