The pound took a dive as the UK’s GDP grew 2.4%y/y in the second quarter, lower than 2.6% expected. Hence, expectations for a BoE rate hike are being pushed further down the road.
We see swings and roundabouts once again in the FTSE constituents with the index regaining the 6000 level yet again and all sectors in the green.
The weakness in pound and the recovery in commodities should be supportive of the FTSE stocks today. Nonetheless, gains remain fragile as the FTSE is still swinging on high volatility in what are fast becoming bear market conditions.
The pound approaches the oversold market conditions against the US dollar. But offers pre-1.52 will certainly continue challenging the upside attempts on UK’s disappointing economic performance in the second quarter. Key resistance is seen at 1.5250 (Fib 50% over the last six months & support turned resistance) and a large 1.5250-strike vanilla put will also be expiring today. Some more vanilla puts are waiting to be activated at 1.5100/1.5070. Trend and momentum indicators are negative and suggest an extension to this critical zone of 1.5100/ 1.5087 (Fib 61.8%). Approaching 1.50 mark, possibility of dip buying to build mid-term long position.
The brutal sell-off in European markets on Monday has also been tempered this morning with supermarkets outperforming and a rebound in automakers aided by China cutting taxes on small cars. Materials are the second best performing sector this morning.
Darty (LONDON:DRTY) +15% French electronics retailer fnac (PARIS:FNAC) has made an all-share bid for the London listed firm valuing them at 101p. The stock had been recovering recently after trading from 130p in January down to below 60p in the summer.
Anglo American (LONDON:AAL) +0.74% Collahuasi, a massive Chilean copper mine is to cut annual output by 30,000 tons in a bid to make its business feasible in the current copper price weakness.
Sainsbury (OTC:JSAIY) +11.2% The top riser in the FTSE this morning. Britain’s third largest supermarket said full year profit is expected to exceed guidance helped by higher than expected cost savings.
Tesco (OTC:TSCDY) and Morrison (OTC:MRWSY) are also catching a bid in concert, rising 4.14% and 5.51% respectively.
Glencore (OTC:GLNCY) +6.09% A bounce in metal prices, specifically copper this morning along with the reassurances from the company that it is ‘’operationally and financially robust" have helped the stock remain off its early week lows. The company is selling assets as part of a wider strategy. If they can raise $10-$12 billion from the sale of gas and address all the balance sheet concerns it would certainly help.
Unilever (NYSE:UN) + 2.69% Unilever (LONDON:ULVR) products are due to return to the shelves of Super-Sol supermarkets in the next few days after the two sides agreed to end a two-month dispute over commercial terms.
Saga (LONDON:SAGAG) +3% The specialist insurer and financial products provider reports half year results in line with full ear expectations and announces a welcome first interim dividend of 2.2p.
Aviva (NYSE:AV) +2.78% The company’s acquisition of Friends Life and the excess cash generation and dividends will result in a 2017 effective yield of 12.5% according to Barclays.
Volkswagen (OTC:VLKPY) +2.82% The company may not face environmental criminal charges. Car companies, with the aid of industry-friendly lawmakers, won a carve-out from criminal penalties in the 1970 Clean Air Act—a loophole that has largely escaped notice in recent years. Prosecutors now are considering alternative legal approaches, such as charging Volkswagen with lying to regulators. Some bounce also seen in carmakers in line with the overall market and as China announced a reduction on taxes for small cars with less than a 1.6l engine.
Macro Funds And Real Money Remain Buyers Of US Dollar Below 120 Mark
Asian equities saw a bounce-back from yesterday’s heavy losses with the Nikkei 225 (+2.5%) outperforming and reclaiming the 17,000 level aiding investor sentiment. In fact, a second consecutive month contraction in Japan’s industrial production and dreadfully inert retail sales in August revived expectation that the BoJ may add further stimulus to avoid deflation from deepening.
BoJ however announced to cut its monthly purchases of floating rate government bonds from 140 billion to 120 billion yen, while leaving the purchases of other maturities unchanged. As the Japanese pensions funds are now shifting from government bonds to local equities, worries about the quantity of JGBs available for BoJ purchases decline.
The yen continues seeing demand in Japan as the month/quarter end and Japan’s fiscal year half end demand prevented the USD/JPY from picking up momentum on the upside. The sentiment is marginally positive with resistance presumed at 120.55/75 (daily Ichimoku cloud cover). A renewed USDJPY hike is possibly on the cards. The downside risk is the subdued US yields which could jeopardise gains on the USD leg. With increasing expectation of a further BoJ stimulus, macro funds and real money remain buyers below 120 mark.