Despite starting the week on the back foot on account of a weak Asia session, and concerns over the Chinese real estate market, European markets tried to rally in early trading, but have spent the day struggling for gains as they look to recover some ground after two weeks of losses.
Europe
The FTSE100 especially has struggled, slipping back due to weakness in basic resources, energy, and the real estate sector, with mining and energy stocks sliding back on concern over Chinese demand.
Crude oil prices appear to have hit a short-term peak, sliding back on concern over Chinese demand, as have copper prices which have slipped to their lowest levels since 30th June, dragging on Shell, BP, Glencore, and Rio Tinto.
The concerns over Country Garden, a big Chinese real estate company, have grown in recent days after it missed a bond payment, as worries over souring loans come back to the fore, over fears that it could be the tip of a very large iceberg. Last year it was Evergrande which spooked markets and this year with Country Garden following suit concerns are growing that another failure could see ripple effects beyond property.
UK housebuilders are also feeling discomfort on rising evidence that landlords are starting to sell-up, with rising capital gains receipts pointing to some capitulation in the housing market, which in turn could put downward pressure on prices in the coming months. Persimmon and Taylor Wimpey are amongst the biggest fallers.
B&M European Retail is amongst the best performers after getting a share price upgrade from Deutsche Bank to 680p.
US
US markets have taken their cues from the lacklustre nature of today’s European session, opening lower, at the same time as yields have continued to edge higher.
The Nasdaq 100 has already slipped below its 50-day SMA, and the S&P500 is already pressing down on its 50-day SMA. If the S&P500 were to also break below this key support level the recent weakness on US markets could start to gain traction largely due to technical reasons, with the next S&P500 target the July lows at 4,385.
Tesla shares have opened lower after the electric car company reduced its prices in China again as it looks to take the fight to its peers in that market, Xpeng, BYD and Li Auto. A slowdown in demand isn’t helping, with shipments from its China factory falling 31% in July, and that production in Q3 was expected to decline due to factory downtime for factory upgrades.
Nikola shares are also tumbling after announcing a recall of 209 of its Class 8 battery-operated trucks, after a truck fire at its HQ in Phoenix, which has been blamed on a coolant leak inside a battery pack.
Cinema chain AMC Entertainment has seen its shares slide after a US court approved the stock conversion plan, while its preferred stock rose sharply.
Concern over falling demand for iPhones has seen Apple shares continue to struggle for gains after one of its key suppliers Foxconn warned that it expects sales to decline this year, moving its guidance for the year lower.
FX
The US dollar has once again been a notable outperformer today, rising on the back of some haven demand, and higher yields on US treasuries with equity markets also looking soft.
The Japanese yen, while not the worst performer today, has still pushed through to its lowest levels this year, pushing the previous lows in June at 145.07, as it looks to close in the November 2022 peaks at 148.50.
The euro has finally broken below the 1.0900 area, opening the risk of further losses now it's finally broken below its 50-day SMA, with the July lows at 1.0830 the next key support.
The pound is also under pressure, slipping to its lowest levels this month, with the risk of further losses on a move below the 1.2580 area, ahead of key data tomorrow which is set to showing wage growth rising to a new record high of 7.4%, increasing the prospect of another Bank of England rate hike next month. Today’s labour market report from the CIPD also pointed to resilience in wage growth, as employers compete for a shortage of skilled workers. These expectations of stronger wage growth over the next 12 months are likely to be bad news for the Bank of England in keeping a lid on interest rates and could keep them erring on the side of further rate hikes in the coming months.
Commodities
Crude oil prices have continued to slip back from their 6-month peaks of last week with the weekend reports out of China undermining the optimism that the Chinese economy would be able to shrug off the gloom around its property sector. For several weeks oil prices have been rising on concerns over supply relative to demand. It now appears that Chinese demand may well not be as robust as markets have been pricing. Tomorrow’s retail sales and industrial production numbers could well reinforce these demand concerns with further weakness in its July numbers.
The rise in yields along with the strength of the US dollar is contriving to keep downward pressure on gold prices, pushing them to their lowest levels in over a month, with the next area of support at $1,900 an ounce.
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