Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)
FTSE 100 Index called to open -40pts at 7350, the current sell-off extending last night to test late July lows and 3-month rising support at 7340. After an overnight pause, in a tight 7345-7555 range, bulls need a breakout and rally back towards 7400 (oversold 4-hourly RSI, supportive 200-day moving average just below). Bears very simply require a breach of 7340 to kick off another down-leg towards 7300. Bearish flag? Watch levels: Bullish 7355, Bearish 7340.
Calls for another negative open (third on the trot) comes after a US equity selloff, inspired by fresh Trump aggression towards North Korea, made for a weak session in Asia overnight. It also saw the VIX post its 8th biggest spike in history, regaining levels last seen around the US presidential election, and resulted in fresh preference for bonds and gold over equities and metals, and added to an already weak oil price.
Note the S&P and Nasdaq closing below their 50-day moving averages for the first time since April, geopolitics weighing along with earnings from retailers Kohl’s and Macy’s and Oil price declines hurting Energy. FTSE corporate news this morning includes Old Mutual announcing a 37% rise in H1 profits, a 32% dividend hike that will please income seekers and says it’s on-track to float two of its biggest businesses next year.
Gold has posted fresh 2-month highs of $1289, extending the bullish flag towards $1320 that we have been highlighting. Whilst back from overnight highs support remains valid at $1284 thanks to geopolitical jitters and a US dollar trading back from August highs.
Oil prices have given nearly of their recent gains, Brent test support levels of the past two weeks ($51.4), US Crude having gone even lower to test levels last traded late July ($48.3). This after a revival of global supply glut concerns trumped this week’s bullish US inventory reports.
In focus today will be US Consumer Price Inflation (CPI) and Average Earnings (1.30pm) prints for July. We do have more July final CPI prints from the Eurozone (France, Spain & Italy adding to Germany this morning), but as these are finals, we expect limited deviation from the flash estimates.
US CPI is expected to have picked up in July, the headline metric back to April highs of 0.,2% after a negative May and flat June, while the annual rate picks up from June’s 1.6% 8-month low. The perhaps more critical Core measure is forecast to have picked up in July but unchanged yearly.
More interesting may be Average Earnings growth which, rather like CPI, remains stubbornly below the Fed’s 2% inflation target. Any major improvement on June’s earnings growth of 0.9% (hourly) or 1.2% (weekly) could spice things up if taken as representing inflationary pressures that increase the odds of a another US interest rate hike. Watch any USD move that could have a knock on for GBP and EUR, and thus the FTSE and DAX.
After yesterday’s Oil price sell-off on fresh oversupply concerns, this morning’s Monthly IEA report (9am) will be of interest. Will it help, or merely add fuel to the current fire?
Back in Europe, French CPI (7.45am) is expected to confirm a drop into deflation (-0.3%), its worst since July last year, while the 12-month pace stagnates at 0.7%. Spain (8am) should confirm CPI fell sharply in July (to -0.7%), extending a reversal from 1.0% 6-month highs in April, following a flat May/June. Annually its rate should hold around 1.5%.
Italy (9am) may confirm a return to growth after May’s sharp drop, although the annual rate may have cooled further to 1.1%, its slowest since January. Eurozone inflation thus remains very mixed, a thorn in ECB President Draghi’s side. Watch the EUR this morning.
Speakers this afternoon include the Fed’s Kaplan (neutral) around lunchtime while the dovish Kashkari (dovish) talks mid-afternoon. As FOMC voters, both have potential to move the USD, impacting both GBP and EUR, and thus the FTSE and DAX.
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UK Company Headlines: (Source: Reuters/DJ Newswires)
- Old Mutual 1H Earnings Rise; Lifts Dividend by 32%
- IAG, Air France, Lufthansa Target Prices Go Up at Liberum
- Hong Kong Stocks Rattled by North Korea Tensions
- Restaurant Hires Greene King’s Kirk Davis as its New Finance Chief
- Base Metals Fall as Risk Appetites Wane — Market Talk
- TT Electronics 1H Earnings Rise; Sees Further Progress Ahead