Equities gain, oil drops
European stock markets closed higher on the session even though Gazprom cautioned that gas prices could jump an additional 60%. In recent weeks, we have seen bouts of selling whenever there have been concerns about energy shortages but the rise in gas prices could not derail the bullish run in Europe. The German ZEW economic sentiment report is a survey of investment sentiment, and it fell to 55.3, its lowest reading since 2008. The bleak outlook was not reflected in the DAX as the market gained 0.6%. A few hours ago, US stocks were in the red thanks to a housing update, but equities have since turned positive. The report showed there were 1.45 million housing starts in July, its lowest reading in nearly 18 months. Worries about a possible recession ticked up in light of the data. On a more positive note, Walmart posted well-received second quarter results as EPS and revenue were $1.77 and $152.86 billion respectively – both metrics beat forecasts. The company maintained its guidance for the second half of the year, and that caught traders’ attention because there were mild worries that firms might lower their guidance on account of the rising inflation and a weaker consumer climate.
The US dollar was showing strong gains this morning, but the bullish run fizzled out and now it is basically flat. EUR/USD fell to its lowest mark in almost two weeks, but the currency paid swung back around to positive territory. In a similar fashion to European indices, it is remarkable the euro is enjoying a rally considering the gas price situation. The Canadian dollar is holding up well as its inflation report matched expectations. The CPI reading was 7.6%, down from 8.1%.
Metals are weaker today as there are lingering concerns about the health of the Chinese economy, in addition to that, the earlier strength of the US dollar also hurt silver and platinum. Even though the US dollar retreated in the past few hours, that has not helped gold as the yellow metal is still down. It is possible the positive move in equities is hanging over the lower-risk asset. There are some optimistic rumblings surrounding Iran as the EU said the country’s response to the nuclear deal was “constructive”. WTI and Brent crude are down over 2.6% as dealers are taking the view a successful deal with Iran could pave the way for sanctions to be removed, and in turn that would see Iran’s oil output rise.