FTSE stocks gain 1.5% led by financials in London, defensive stocks and sovereign bonds trade on the sidelines.
Following further contraction in Chinese trade terms in August, the European and the US stock indices painted the equity picture in green on strengthening belief that central banks’ would not dare taking their hands off the blurry financial markets in the immediate future.
Addicted to central bank volatility, traders sent Shanghai’s stocks 3.28% higher on expectations that the deterioration in China’s trade terms could only bring more monetary stimulus from the Bank of China. As the placebo motive for the rising stock values is fundamentally wobbly, the vulnerability in the Chinese stock market is expected to remain an important issue for bringing back a mid-term stability.
The notion that the weak macro numbers will only aggravate the current deflationary climate is likely aiding equity markets today, as it perhaps helps to discount the possibility of monetary tightening from the Fed next week.
Hence suddenly overran the general conviction that September may not be the right time for the Fed to start hiking the federal fund rate. Softening Fed hawks leave the field to a soft play in USD across the board. The majority of G10 peers take a breather. The bulls facing the US dollar are nevertheless expected to keep their enthusiasm contained before a clear evidence of inaction from the Fed.
The US sovereign markets price no more than 30% chance for a September action, while odds for a potential year-end tightening from the Fed ease below 60%.
The volatility in Fed speculations witnesses of the stress in the underlying market. The economic fundamentals put aside, the rise in financial market agitations could be a good reason for the Fed to abstain from taking the first step on next week’s FOMC meeting.
Standard Chartered (LONDON:STAN) (1.77%): Standard Chartered fell to the bottom of the FTSE 100 yesterday amid concerns over new Iran-related fines, the reported axing of senior staff, and an Asian overhang. Standard Chartered closed 11.9p, or 1.7pc, lower at 701.4p – a 6 year low. A commodity price slump and emerging-market currency pain damaging both its growth and credit-quality outlook. Some short covering taking place today.
Aberdeen Asset Management (LONDON:ADN) (+2.4%) The stock is already down 29% year to date. A downgrade from RBC Capital today with the possibility of further estimate reductions based on poor investment performance and shrinking margins. Again, a case of short covering here, with the share price finding some support at the 300p marker. Average 12 month target price is 402.63p
United Utilities (LONDON:UU) (+3.29%) Following an outperform rating yesterday from Bernstein, the stock has been raised to buy at Soc Gen. The 12 month target price is 940p
Whitbread (LONDON:WTB) (+2.36%) Set to raise prices throughout its hotel and restaurant chain in response to the government’s new national living wage. Premier Inn growth has slowed according to the company’s trading update, but still expects to deliver full year expectations.
Barclays (LONDON:BARC) (+2.45%) The bank has picked up the pace of its cost-cutting under chairman John McFarlane. Earlier this month, it sold most of its Portuguese business, representing a £1.7bn decrease in its risk weighted assets. Barclays sold the portfolio of UK loans, which has a notional worth of £1.6bn, or £1.2bn when adjusted for risk, to a group including Goldman Sachs (NYSE:GS), Elderbridge, which buys and administers loans and UK private equity group Pollen Street Capital for an undisclosed sum.