Markets falter but S&P 500 at new weekly high

Heading towards the European close markets are struggling to hold their ground, slipping into the red following modest gains this morning.

Wall Street sign
Source: Bloomberg

UK markets

The FTSE did its best all day to stay in positive territory, despite the best attempts of Tesco and the rest of the supermarket sector, but the will to fight disappeared in the last hour or so as buyers dried up ahead of the US Labor Day holiday on Monday. Friday afternoons have been prey recently to last minute Ukraine worries, which have provided handy excuses for a spot of late-day selling, and today appears to be no exception.

Tesco shareholders have spent the day coming to terms with reality, much like their peers in Morrisons had to earlier this year. They have been patient up until now with the idea of lower profits, but the idea of lower dividends is a step too far. Nonetheless, the company has taken the right step, and some investors have only themselves to blame if they thought their dividends were somehow sacrosanct. A new era starts on Monday, and the new CEO will hope that his honeymoon gives him time to put the necessary rescue plans in place.

US markets

US indices are faltering, but if the S&P 500 finishes the day above 1991 it can chalk up another landmark – a fresh record high on a weekly basis and a fourth consecutive week of gains as well. The week has seen a dramatic decline in volumes, so the rally looks to be built on shaky foundations, but the arrival of September should see the return of volume.

Against a backdrop of improving macroeconomic data and rising earnings, equities still look like the place to be. Some caution is still required given the situation in Ukraine, but with NATO ministers gathering soon for a meeting President Putin is unlikely to take any action while the alliance’s leadership is concentrated in one place. So long as all-out war is avoided, equities are still likely to remain relatively unperturbed.

Commodities

Renewed geopolitical worries have seen gold and silver gain as equities dip ahead of the long weekend in the US. Gold has pushed through $1290 once again, indicating that so long as Ukraine remains in the headlines there will always be a willingness from investors to hold at least a portion of their portfolio in gold.

Oil prices are enjoying their first positive week since the early part of July, helped on their way by the general run of positive US economic data. However, buyers of oil thinking that more good US figures will drive the price higher should remain aware that supply is plentiful enough to exert significant downward pressure on the price.

FX

Punchy numbers on the Chicago PMI and the Michigan confidence index wasn’t enough to prompt much US dollar buying, with EUR/USD in particular looking eerily quiet.

Next week sees attention shift back to the ECB, but if Mario Draghi opts to sit on his hands this time around the situation in this currency pair looks ripe for a short squeeze that could see the currency move back towards $1.34.

Meanwhile the pound is back above $1.66 against the US dollar, but practically no-one expects the Bank of England to do anything next week, leaving the currency vulnerable to a drop through this week’s lows.  

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