A positive open on Wall Street encouraged a late rebound in European markets. The dismay many people felt after watching the US presidential debate was manifested in a downbeat lackluster session. After a decline in September, European stocks are almost unchanged over the quarter and down double digits on the year. European benchmarks fell less in September than markets stateside but its no cause for excitement because they went up a lot less in July and August.
An afternoon rally in Swiss stocks helped the SMI index edge back into positive territory. The small lift was led by homebuilder Sika AG alongside Swiss banks Credit Suisse and UBS. Bank stocks have been especially volatile amid a flurry of news from the FinCEN files to JP Morgan’s huge $1 billion fine to more Chinese investment in HSBC.
The FTSE 100 edged into the green by the afternoon led by homebuilder shares after data showing a 5% monthly leap in UK house prices. Hammerson shares jumped over 5% in unison, making it a top riser across Europe. Those betting against the British housing market generally come out worse off but homebuilder shares are lagging on a year-to-date basis. Pent up demand is probably about used up by now, the stamp duty holiday will finish and higher unemployment is expected when job support schemes run out. That all points to weaker demand for housing next year.
Wall Street opened in the green after US Treasury secretary Steve Mnuchin said there was a last shot at getting a new stimulus bill passed. That helped a bounce back from small overnight losses in futures markets following the first presidential debate. Disney stock sank after its decision to lay off a huge 28,000 workers. It’s shocking because of the big number but unsurprising given the state of its theme park business. While capacity at most of the Disney parks are limited by social distancing then revenues are down, and costs need to come down too.
The US dollar was back in form following hotter than expected ADP employment data, where 749,000 private jobs were added in September. The dollar is being favoured as a haven with FX traders putting greater weight on the increasing chance of a stalemate election result than scope for a new US stimulus package.
September has marked a return to form for the buck but there have been some early signs of dip-buying in the euro and other currencies near 2-month lows. COT positioning shows speculators still heavily overweight the euro versus the dollar on expectation of ongoing easy policies from the Fed.
ECB President Lagarde gave one her clearest indications yet that the central bank is on course to change its inflation mandate, very much akin to the change made by the Fed. Lagarde said: “In the current environment of lower inflation, the concerns we face are different (than in 2003) and this needs to be reflected in our inflation aim.” In central bank land, if after a decade you can’t achieve your goal, you change your goal.
Hopes for a Brexit breakthrough and much better than hoped GDP figures helped the pound get a small lift against the euro. Some shuffling of the hard lines on both sides, including fisheries on the EU’s part and the car industry on the UK side shows they are not just running down the clock.
It’s been a rough month for precious metals after the rally finally gave way following months of an almost straight line higher. Gold is on course for its worst month in four years.
Central banks are leaving their foot on the accelerator but they’re not pushing further. Less money-printing from the Fed and growing uncertainty around the US election have fed into a stronger dollar. The dollar strength is kryptonite to gold. Oil prices were mixed heading into EIA US inventories data.
Jasper Lawler – Head of Research – LCG