Picking up the pieces

The global selloff seems to have come to an end and the market is picking up the pieces after the hurricane. The tally: the Dow has lost 1,400 points in two days, Brent Crude is back down at $81 and the dollar is trading at 1.1579 against the euro. Key indices have fallen below their 200-day moving averages and are beginning to look oversold but the underlying economic reasons for a rise in interest rates that had triggered the spike in bond yields and the selloff in equities is still in place.

For the moment though, European markets are back in the black and the recovery in Dow futures indicates a stronger start on Wall Street later today.

High street still in trouble

Clothes retailer Coast is the latest high street chain to fall foul of increased consumer caution and reduced retail spending ahead of Brexit. This ‘batten down the hatches’ mentality has been bad news for many retailers that depend on high footfall from UK shoppers. But budget retailers like Aldi and Lidl have benefited from the changing spending habits as did bakery chain Greggs. The maker of cheap sausage rolls is one of few stores to report an increase in sales in September against the trend of a 2.7% in-store sales decline countrywide. The FTSE 250-traded Greggs saw shares rise 11% this week.

Brexit

This week has seen some positive news on Brexit including Labour MPs saying that they would support PM Theresa May’s proposed deal and Chancellor Philip Hammond claiming that negotiations have changed pace and have become more positive. But at home hard-line Brexit MPs have no intention of sanctioning the current proposals especially over the shape of the customs union.

The currency market is closely following the action and because there have been no new developments, sterling remains a little directionless this morning. The pound is close to flat against the dollar and is showing a marginal increase against the euro while the greenback is also trying to decide its next direction. This may be harder than it looks given that President Trump is building up to making the Federal Reserve’s chairman Jerome Powell his public enemy number one. Trump has branded the Fed’s policy of raising rates ‘crazy’ and ‘loco’. Despite the ire Trump can’t do much to change the Fed’s plan because the central bank is fundamentally independent and free to make its own decisions, irrespective of the President’s views.