After a long run of losses, the FTSE 100 is struggling to close higher for the first time since 10 August even though it is finding an element of support just above its March lows, and after China cut one of its key loan rates in an attempt to put a floor under recent market weakness.
Europe
The 7,200 level appears to be becoming a bit of a line in the sand for bullish sentiment around the UK blue chip index, having found support here in July, and now again in August, while the DAX and CAC 40 are also struggling to find support after last week’s sell-off.
At one point the FTSE 100 was posting some solid gains, largely being driven by gains in the energy sector with BP and Shell tracking higher, along with the oil price, however the dissipation of those oil price gains has served to pull the market off the highs of the day, as yields continue to pop higher.
The US 10-year yield has pushed to its highest level since 2007, while UK gilt yields are also pushing back towards their highs of the month.
UK housebuilders are the worst performing sector today after house sale asking prices saw an almost 2% decline in August, although this could also have more to do with a summer holiday lull. Nonetheless a profit warning from UK housebuilder Crest Nicholson has reinforced the challenges facing the housing market in the months ahead with interest rates set to be hiked further next month.
Crest Nicholson cut its outlook for pre-tax profit to £50m, a sharp fall from the previous £73.7m and says it doesn’t expect to see much of an improvement in business conditions between now and the end of the year. This sharp downgrade has acted as a drag on the wider sector with declines in the likes of Taylor Wimpey, Persimmon and Barratt Developments.
US
The initially positive tone in European markets initially saw US markets open higher, as we look to break a pattern of four successive daily declines for the S&P500 and Nasdaq 100.
While the Nasdaq 100 has led the move higher, today's rebound is running into trouble due to rising US yields which have pulled the market off the highs of the day. Last week’s break of the 50-day SMA on both the S&P 500 and Nasdaq 100 has shifted the mood slightly on a technical basis shifting the bias to one of caution over whether we can expect to see further declines.
Citigroup shares are in focus on reports that the bank is looking at splitting its Institutional Clients Group into three separate business segments. Investment and corporate banking, global markets and transaction services would all operate separately with direct reporting lines into the CEO, stripping out a layer of management in the process.
Another US bank is also looking at how it does its business with Goldman Sachs reported to be weighing up a sale of its personal financial management unit. This would be on top of the sale of GreenSky, its online lending business, as it looks to retreat further from more mainstream banking activities and focus on higher margin and net worth markets.
Zoom Video’s Q2 earnings are expected after the bell with the main focus on whether it can continue to grow its revenues. Q2 revenues are expected to come in at $1.11bn.
VMWare shares are higher after the CMA in the UK gave the thumbs up to Broadcom’s $69bn takeover.
Nvidia shares are also higher after being on the receiving end of a broker upgrade ahead of its Q2 earnings numbers later this week.
FX
On the currencies front the euro appears to be holding up well despite German producer price inflation plunging at the fastest rate since 2009. If prices continue to fall in the way they have been its going to be a big ask for the ECB to continue hiking rates at its current pace.
Disappointment over the extent of stimulus measures announced by China has seen the Australian dollar underperform, but it hasn’t been the worst performer.
That honour goes to the Japanese yen which has continued to slide as the market looks to find out where the Bank of Japan’s pain threshold is for the currency, with speculation that they won’t intervene until the currency slips to the 150.00 level.
Commodities
Natural gas prices in Europe and the UK are higher again as the prospect of strike action in Australia LNG plants becomes ever more likely.
Crude oil prices have tried to move higher for the third day in a row, initially helped by the more positive tone from equity markets in the morning session, however the lack of momentum has seen prices slip back from their highs of the day. Last week’s pullback was largely driven by profit taking after several weeks of gains as the prospect of a slowdown in China offset the prospect of tighter markets.
Gold prices, after initially pushing higher towards $1,900, have rolled over to new five-month lows, as US 10-year yields pushed to their highest level since 2007.
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