Euro slides below 1.10 vs US dollar

FTSE trading flat - Energy stocks gain
by Brenda Kelly

Given that FTSE’s weighting to the financial and energy sectors is rather heady, it shouldn’t really surprise that the index is underperforming its European counterparts of late. Standard Chartered releasing a poor set of numbers has only added to the fray this morning. Year to date, the UK benchmark is off by 4.1% whereas the Cac and the Dax have added 4.63% and 1.41% respectively.

The question is whether or not all the bad news has now been discounted and indeed whether we are going to witness a rally from here for the FTSE. Cost cutting and job losses in both sectors seems to be the recurring solution but will only take you so far and with the previous scandals and weakness in China still hanging like the sword of Damocles, it seems the financial sector has an uphill battle. Many investors will hang in there for the dividend yield and the expectation that any exposure to Asia will turn out to be a boon in due course.

At the present time, many investors are also shying away from investing in the oil sector. Understandable, since the near-term outlook for the commodity is not exactly positive, with a global glut of supply and relatively low demand combining to suppress the price of oil. Given that no single company wishes to reduce production as it fears the loss of market share, unless we see some serious consolidation in the industry we can likely expect to see additional downside. This move will only be exacerbated by any rate hike from the FOMC.

Energy stocks are however on the up today with the likes of BG Group (+1.46%) and Shell (+0.94%) rising on the premise that we may be seeing some stability in oil prices. There is much speculation that oil will retake the $60/bbl level and then some. Shell already divulged a massive loss last week due to write offs in Alaska and Canada and looks to reduce costs by come $11bn. The merger between the two companies looks shaky while oil prices are at present levels, nevertheless Shell is gung-ho about the takeover and has today announced plans to make the deal work as long as the oil price continues to

recover.

UK house builders despite gaining a stamp of approval yesterday from JP Morgan are under pressure this morning following a ratings cut from Liberum. The spectre of the UK QIR this Thursday and the potential for a more hawkish outlook is likely also weighing here to some extent. UK construction PMI took its cues from yesterday’s manufacturing survey and managed to stay on an even keel at 58.8.

Barratt Developments: -2.95%
Taylor Wimpey -2.12%
Persimmon – 1.37%

DIY firm Kingfisher is also lower (-0.93% )is lower as a result too.

Weir Group (+5.95%) The stock recently dived to lows last seen in February 2010. It has suffered from reduced activity in the North American oil and gas sector, as it reported 29 per cent year-on-year fall in third quarter group order input. Weir is set to take measures to address and support profitability and sees FY results in line with market views but the outlook is challenging. Q4 likely to see further declines in oil and gas activity. Average broker price target is 1316p

Standard Chartered (-6.32%) plans to cut 15,000 jobs and raise £3.3bn in a rights issue as CEO Winters struggles to revive a lender that halved in value over the past two years. Revenue was down 18.4pc to $3.68bn and impairment losses increased from $536m to $1.23bn for the quarter. The bank pledged cost savings of $2.9bn by 2018 and said it will restructure or exit $100bn of assets. A move to a more profitable and less capital intensive business is what the company seeks. The fact that the bank is now facing new probes on suspected anti-money laundering breaches is also weighing on the stock today.

Aberdeen Asset Management +1.24% Standard Chartered’s second largest shareholder. The CEO has stated this morning that he is supportive of the StanChart strategy.

ABF (-1.19%) At least it’s still paying a dividend but adjusted pre-tax profits were down 6 to £1.03bn and earnings per share fell to 102p. Current headwinds and food commodity deflation have been blamed for the fall in revenue.

We are calling the Dow lower by 38 points to 17790.

Euro slides below 1.10 vs US dollar
by Ipek Ozkardeskaya

The euro takes timid steps below the 1.10 mark against the US dollar on news that the ECB accelerated its sovereign bond purchases to the fastest of the last seven weeks. The ECB bought €63.7 billion worth of Eurozone sovereigns last month, expanding the size of its balance sheet to €2.56 trillion. At the current speed, the ECB’s holdings will likely grow well above the €3 trillion by the end of September 2016, targeted as the hypothetic end date for the current QE program.

The euro has at least a good reason to cheapen. As the yield spread between the US and Eurozone sovereigns widens on diverging Fed/ECB monetary policies, the selling pressures in the euro rises. Certainly, the euro-demand as a funding currency tempers the euro’s depreciation over time, however the mid-long term direction is forthrightly negative.

Even the euro cheapening below 1.10 per dollar has been powerless to attract investors into the European stocks this morning. The DAX stocks underperform in Frankfurt as Volkswagen is once again on the headlines; the US pursues the German giant on its diesel-emission accusations. This time, Porsche comes under the spotlight and Volkswagen refuses the fresh accusations implicating new models, as the very popular Porsche Cayenne. Nonetheless, talks are enough to push the general mood down the hill.

Potential decline in appetite for the US stocks?

Appetite in the US stocks could also deteriorate amid a cheerful start to the week yesterday. Nasdaq 100 hit a fresh all-time high; the SPX needs no more than $30 to refresh record. Yet the S&P placed BoFA, Wells Fargo, JPM, Citi, GS, Bank of NY and MS on ‘negative’ credit watch. The overbought US shares could therefore tend to correct before the US jobs data creep in. The ADP employment report is due tomorrow, the nonfarm payrolls and wages are scheduled for Friday. The market is prepared for weaker data yet interestingly the odds for a December rate hike remain at a solid 50%.