The DAX gains as euro weakens

UK wage growth losing momentum
by Brenda Kelly

A bank holiday in the US and little in the way of macro data this afternoon it’s another day where the focus is firmly on China. Economic data in China continues to slow with the only upside coming from retail sales which grew 11% in October year on year. Industrial production increased 5.6% annually last month while fixed asset investment printed a 10.2% gain. This on the back of the weak trade data over the weekend has invited some caution once again in the FTSE basic resource sector languishing again as commodity prices continue to slide. Despite the myriad of rate cuts and stimulus over the past year from China, the results have been elusive but the market still wants more. In any case, so goes copper, there goes the FTSE.

The price of base metals continues to be a worry for the likes of Anglo American (-0.76%) and Glencore (+0.33%) Copper and zinc have both plunged to 6 year lows and for the time being show little signs of a bullish reversal.

While gold prices appear to have found a temporary floor around $1090/oz but remain under pressure owing to the dollar strength and the overall trend. Gold prices are down for the 3rd consecutive year and have shed 8.6% since mid-October.

BHP Billiton (-0.73%) and Randgold Resources (-0.3%) continue to be an anchor on the FTSE100 as a result.

The Dax is also pulling back from some of yesterday’s downside, up 122 points. This is mainly down to some very dovish remarks from Bank of Italy governor, Visco. The prospect of negative deposit rates and possibly an extension to the current QE programme are now fairly real. The euro remains above the $1.07 level but it will be merely a hop, skip and a jump lower from present levels towards the 1.0480 levels should the current momentum continue and the relevant central bank divergences persevere. The mere rhetoric from the various talking heads is already vastly at odds.

A broker note about weakening iPhone supply-chain orders was a negative for Apple yesterday which shed 3.2%. This weighed on semiconductors and predictably initiated weakness among iPhone suppliers.

Suggestions that Apple has lowered component orders by as much as 10% on weak demand for the new iPhone 6s, could weigh on its shares for the next few weeks/quarters.

This morning some of the affected companies are paring back some of the losses, e.g. Arm Holdings (+0.96%)

There were some positive highlights in the UK macro data this morning. With Q3 unemployment falling by 103,000 – the most in a year and putting the unemployment rate at 5.3% which was marginally better than expected .The average wage index was a mite lighter than expected at 3% growth against the consensus for a 3.2% lift – there may be signs that this metric is losing momentum and could vindicate the lack of action form the BOE.

The pound has pulled back some of its intraday gains against the dollar as a result and now trades at 1.5138 following a high of 1.5185 earlier. UK 10 year gilts are little changed.

Housebuilders are somewhat lower in the aftermath of the UK employment data. Barratt Developments having gained 1% at the open has fallen back to the lower end of the benchmark along with Persimmon. Barratt holds a fairly optimistic view on the year ahead with market conditions still strong and high levels of consumer demand keeping sales steady.

Other equity highlights:

SAB Miller (+1.36%) Finally, we have reached a formal agreement. AB InBev announced it will pay £44 ($66.7) per share for the London-listed drinks company valuing the deal at $12 billion.

Experian (+3.2%) the firm has bounced back from last month’s hack which exposed the details of 15 million US customers who applied to use its service through T-Mobile. A top riser in the FTSE again today, it has received “a number of class actions” and has warned that it’s too early to predict the effect or indeed costs of the regulatory and government investigations or legal action.

Schroders (-0.63%) The asset management group has been cut to equalweight versus overweight at Barclays as Q2 outflows disappointed versus the expectations for a flat performance .

The DAX gains as euro weakens
by Ipek Ozkardeskaya

The DAX opened upbeat in Frankfurt. Henkel and Adidas lead the early gains. Depreciation in euro against both the US dollar and the pound encourages demand in export-driven German stocks.

Henkel beat earnings estimates in the 3Q, while printing a greater-than-expected fall in its sales from 4.695 billion to 4.590 billion euro. Nevertheless the company raised its profit target in 2015 on the back of a surprise jump in Persil sales in the emerging markets. Prospects for a cheaper euro is also convincing for expansion of activity in the US as there is business to be grasped from the P&G presently dominating the North American market. Chinese market is still a leading potential for the business and despite the Chinese slowdown, the 6.5% growth in organic sales is reassuring.

Euro cheapens, pound recovers

The euro shortly slipped below 1.07 versus the US dollar in New York yesterday, Asia pulled the single currency higher as indication that demand in euro funding is settling back. Top sellers chase opportunities in euro-crosses however, as dovish ECB expectations for December and political issues in Portugal keep the sentiment comfortably negative vis- à-vis the euro.

The idea that the Fed is moving toward a rate hike by December could even bring the parity on the radar.

Cable recovered two-thirds of last week’s post-QIR losses, yet remains technically in the bearish trend. Given the Bank of England’s dovish shift in inflation and growth forecasts, the improvement in the labour market is expected to be insufficient to twist the presently developing bearish trend in Cable.

On the other hand, euro-pound still points to 0.70c mid-term target. The European Central Bank has been successful in managing the market activity so far. Prospects that the ECB will further loosen the monetary policy with the possibility of more QE and even deeper negative rates, keep traders away from building on their long euro positions.