Asian markets began Wednesday on strong footing, following the overnight gains on Wall Street, but later in the day stumbled. Japan’s Nikkei gained for a third consecutive session as the Yen continued softening versus rival currencies, but Australian markets retraced early gains and ended slightly lower. Similar action occurred across the region, although mainland Chinese markets reversed losses and finished the day higher as investors speculated on strong Chinese industrial production data to be released Thursday.
European markets were mixed on a country specific basis, but slightly lower as measured by the broadest European indices. Both German DAX30 and French CAC40 saw modest gains, but there were losses from smaller exchanges. A weaker Euro did help somewhat, but the weakness from technology firms linked to Apple weighed on the broader markets. A drop in the FTSE also contributed to the fall, with the London benchmark index finishing lower despite a drop in the Pound that was caused by weaker than expected wage growth in the U.K.
U.S. markets managed to recover from early modest losses to book another round of broad based, but small gains, striking new record levels. Gains were led by energy and consumer discretionary shares, while health care and real estate shares led the decliners. Overall though, trading was muted and without a catalyst we could see this type of tightly range bound sideways movement in the U.S. markets.
Euro-Dollar traded lower on Wednesday due to a stronger USD, moving back below 1.1900 and erasing pretty much all of the gains made last week. The traders are looking ahead to the U.S. CPI data due Thursday. The move also solidifies a trading range for the pair, with a floor at 1.1850 and a ceiling just above 1.2025.
After rising briefly above 1.3300 in early trade the pair headed lower, erasing nearly all the gains made in the previous session. The pair didn’t break below 1.3200, but ended the day close to that handle, and traders are obviously showing caution ahead of Thursday’s monetary policy meeting of the Bank of England, and the CPI inflation data due from the U.S. later in the day.
Rumors of closing exchanges in China have put cryptocurrencies into a downward trend, as speculators choose to take profits rather than ride out potential risks to cryptocurrency valuations. Late Wednesday in the U.S. all the major cryptocurrencies are roughly 5% lower on the day, with Bitcoin remaining below the key $4,000 level. Traders continue to speculate how low the market can go, and some are calling this the end of Bitcoin, although we think that’s highly unlikely.
Precious metals declined for the third consecutive session Wednesday, with gold settling at its lowest level of the month, and posting the longest losing streak in six weeks. A lack of safe haven demand this week has weighed on the precious metals.
Crude gained for the third session in a row Wednesday, with U.S. crude settling at a five week low, while the global benchmark Brent crude reached highest level since April. The gains for crude came after a report detailing the first drop in global crude production in four months, and were accelerated when the U.S. reported a smaller than expected rise in crude inventory levels for the week.
The Dow posted the best gains of the major indices on Wednesday, although that was still a quite modest 0.2% as markets spent the day trading back and forth over unchanged levels, looking for some catalyst to help establish direction. In economic news, PPI was in-line with expectations, giving no push to the Dow in either direction. Thursday will see the release of CPI and employment data that could be what the Dow needs to establish a stronger move.
London’s benchmark index fell at the open Wednesday as equities continued to feel the weight of the stronger Pound. Later in the session when U.K. wage growth was reported as weaker than expected the Pound retreated, and while stocks rallied on the news, it wasn’t enough to send the FTSE into positive territory by the close. Stocks may bounce tomorrow, however investors will be contending with caution over the Bank of England monetary policy meeting, which will make any strong gains difficult.
If the report issued Tuesday calling for lower third quarter revenue at McDonald’s is correct, there is a long-term bear case for the stock. Are there compelling reasons to go against the grain and look for opportunities to buy on a bounce though? After all, McDonald’s shares hit a 52-week high just several days ago, and upward momentum has been strong, with the stock returning 28% year-to-date, and 60% over the past two years. The company is refranchising company-owned restaurants, which could cut as much as $500 million in administrative costs. And McDonald’s consistently beats earnings estimates, so any doom and gloom scenario for the third quarter could be blown away when results are actually reported.