Markets continue to run hot and cold and any recent rallies have proved to be fairly unsustainable. Market liquidity constraints, mixed messages from the Fed, the fall out in the EM space coupled with the lack of clarity on China and now the increasing risk of US government shut-down all playing havoc with investor sentiment. While this is not necessarily a certainty, investors will be wary and likely to remember the previous shut down in respect of the debt ceiling in October 2013. Even amidst QE, the S&P declined some 5% at the time.
Today we witness a U-turn in FTSE movers with the basic resource sector once again falling out of favour with market participants.
The Bloomberg Commodity index is now at levels last seen in 1999 and UK miners and energy companies are taking the brunt of the pain.
Shell (– 1.31%), Anglo American (-1.23%) Glencore (-1.19%) Antofagasta (-0.95% )
GKN has seen a small bounce of 0.7% as it stages a minor recovery in the wake of the VW scandal. Shares in the company were already under intense pressure since hitting a high of 389p back in February. Since then a decline of 33% has taken place so it’s really an element of bottom fishing here with few fundamentals to back it. HSBC has a reduce rating on the stock while RBC Capital, JP Morgan and BNP are all fairly bullish on the stock with an average 12 month target price of 363p.
The Dax is trading fairly flat in early trade but will it’s auto sector is likely weigh in the medium term.
Volkswagen has seen some recovery in its share price, up 6% at time of writing but remain close to levels last seen in 2012. Given that Winterkorn has stepped down, investors look to Friday for news on his replacement.
Rumours BMW has also got some issues in respect of emissions has also sent the share price into decline this morning. It’s presently down 3%.
We call the Dow higher to 16312 but given the recent trends, where we have been consistently seeing lower highs over the past month, this is unlikely to be sustained. Durable goods orders and unemployment claims are due later this afternoon. The former is expected to grow 0.2% on the month while claims are expected to climb slightly on the previous week to 268,000.