Europe
European equity markets have ended the week in a much more buoyant mood than they finished last week with the German DAX pushing up to three month highs after comments from ECB President Mario Draghi that the European Central Bank must “do what we must” to raise inflation quickly. While it may not be as good a sound bite as “whatever it takes, and believe me it will be enough” the tone seems pretty unequivocal and more or less nails on the prospect of action when the bank meets in less than two weeks’ time.
The only real question remains as to how much they will ease by, and what type of measures they intend to announce.
When last week’s tragic events in Paris are also factored in, with the prospect of an extended state of emergency in France, it was probably pretty clear that the ECB would have had to act in any case.
On the upside today Imperial Tobacco Group (L:IMT) shares are doing well on recycled takeover chatter with reports this time that British American Tobacco (L:BATS) is interested in making a bid for the company.
Oil companies have remained under pressure as oil and gas prices continue to look soft with both Royal Dutch Shell (L:RDSa) and BP (L:BP) in negative territory. Reports that Shell’s takeover of BG Group (L:BG) has won the approval of the Australian regulator has removed another obstacle to the deal going through, however there is growing concern that the numbers no longer add up, given the long term downward revisions to oil and gas prices.
US
US markets opened higher today remaining on course to reverse the sharp losses seen last week, as investors start to get used to the prospect of a tiny move in US rates, though how policymakers intend to communicate such a shallow glide path is likely to take the form of some very nimble linguistic skills, given that there is no such thing as a dovish rate hike.
Amongst some of the better performers is Nike (N:NKE) after the company announced a $12bn share buyback, a stock split and an increase in the dividend.
Abercrombie and Fitch (N:ANF) also reported better than expected revenues for its latest quarter, though its same store sales were a little disappointing.
The wider retail sector has been a little disappointing this quarter in terms of sales with Gap Inc (N:GPS) cutting its outlook for 2016.
FX
The euro is the worst performer today as the spread between US 2 year yields and German 2 yields continues to blow out, now at a record 128 basis points after ECB President Mario Draghi pledged to “do what we must” to push up inflation. With commodity prices remaining weak and the euro 23% below its 2014 highs with not even a faint whiff of inflationary pressure, the narrative has changed somewhat, and the ECB President appears to be no longer urging governments to implement structural reforms in the same manner he was only a couple of months ago.
The pound has also slipped a little after the latest October borrowing numbers showed that the government could well miss its borrowing target for this year as the Chancellor tries to rein in the deficit.
The government borrowed £1.1bn more last month than the same month in 2014 and this miss could well give the Chancellor much less wriggle room when he comes to deliver his Autumn Statement next week.
The best performer has been the Australian dollar after a week of fairly positive economic data pushed back expectations that the RBA might look at cutting interest rates in the near term. It would appear that despite continued weakness in China that the Australian economy is, for now coping much better than expected.
Commodities
Crude oil prices continue to look weak with US crude prices near the $40 a barrel level as excess supply remains a drag on the price, and pushing prices to their third successive weekly decline.
Iron ore prices have also remained under pressure hitting a record low in Asia, and even speculation that rising losses could cause Chinese steel mills to cut or halt production, hasn’t been enough to help put a floor under prices.
Gold prices have also struggled to rally against a backdrop of a stronger US dollar and a weakening commodity space.
Record stockpiles as a result of warmer weather continue to weigh on Natural Gas prices as they trade just above three year lows, though given the imminent onset of winter there is optimism that these stockpiles could come down quickly.
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