European indices have struck higher

Equity markets climb as commodity prices stabilise
by Brenda Kelly

European indices have struck higher this morning following a mixed Asian session; China has stabilised for the time being but upbeat Japanese corporate results have helped to offset some of the weakness seen last month.

It’s PMI day and it’s been a mixed bag with Germany seeing a dip in sentiment to a 7 month low, Italy disappointing, France merely ticking along while Spain printed a fantastic number coming in at 59.7 versus the 55.5 expected. Much of this is down to a bumper summer tourist season with record numbers arriving on its shores and a stronger economic recovery leading to service companies hiring at the fastest pace in eight years.
Retail Sales are not expected to provide much cheer with a fall of -0.1% on the month the consensus view. Euro weakness is adding to equity upside as the single currency has slid lower against both the pound and the greenback in early trade. This is generally on the back of speculation that the respective banks are likely to look to tighten monetary policy sooner rather than later while the ECB may well embark on additional stimulus to provoke some inflation.

Miners are all on the up this morning. The fall in commodity prices will shake out high cost producers, with some of the smaller players in the sector likely to struggle. The stronger players will be able to ride out the sell-off better. There is a feeling that most of the bad news from the commodity rout has been priced into these stocks already.

Anglo American (+1.43%), BHP Billiton (+2.72%), Glencore (+1.95%) and Rio Tinto (+2.43%) are all higher on this confidence.

Legal & General (+3.72%) the highest riser in the FTSE this morning. The pension group reported better than expected H1 profit. A rise of 18% to £750m in the six months to June and an increase in assets under management has underpinned the share price this morning. Cost cutting and asset disposals has been a familiar theme with some FTSE companies of late and L&G is no different. It is in talks to sell its French unit to Apicil Prevoyance and has also expanded its corporate pensions business to offset the fall in annuity sales in the aftermath of government amendments to the retirement system. They are also keeping investors happy with a rise in the interim dividend, and seem to be shrugging off the worries that the radical pension reforms initially created.

London Stock Exchange; +2.5% Growth in the index business is the highlight as the benefits of acquiring the Russell group start to show, with profits after tax up 21% for the first half.

Standard Chartered; +0.5%: Results come out at 0915 following the market close in Hong Kong. The bank will likely announce recapitalization plans plus further cost cutting to offset weakness in commodity prices as well as the headwinds form a slowing China.

Travis Perkins (-1.85%): Downgraded to neutral at Citi. The stock has underperformed the Stoxx 600 Industrial Goods and Services index month to date, falling 1.3% versus a rise of 1.1% in the benchmark.

We have ADP employment numbers out from the US later. 216,000 are expected to be added. A beat here would ultimately be a strong driver for the dollar which is already forging higher in early trade as it would imply that Friday’s payrolls number will be more than satisfactory and this would likely stir additional speculation for a rate hike as early as next month.

We are presently calling the Dow lower by 35 points to 17515.