Kristian Rouz — Stock markets in the Eurozone advanced somewhat surprisingly given the ongoing Chinese turmoil and weakness in commodities prices, as merger and acquisition (M&A) activity and robust corporate earnings propelled the bull market.
European markets ended their five-day retreat due to a solid performance in the corporate sector, resisting the shockwaves created in mainland China. Safe-haven bonds dropped as investors rushed into the more profitable equity operations, while oil declined for the fifth consecutive day.
In Frankfurt, the DAX Index rose 0.5%, while in Paris, the CAC 40 Index, and the FTSE 100 Index in London also added some 0.5%.
The European M&A activity was the main factor for the bull market. RSA Insurance Group shares jumped 12.9% after Zurich Insurance announced a possible takeover, with a total value of the deal at some $6.85 bln.
Equities of the investment firm Melrose plc skyrocketed 15% after the British enterprise announced the sale of its branch in Northern Ireland to the American conglomerate Honeywell Intl for $5.14 bln.
Kering, the French luxury goods producer, added 5.6% after its subsidiary, Gucci, posted a 4.6% increase in Q2 sales, a sooner-than-expected rebound in commercial performance under a new management.
Tuesdays' trading in Asia-Pacific was somewhat affected by the investor exodus from mainland China. Although mixed, Asian markets ended the day mostly in the red. MSCI's broader APEX outside Japan Index added 0.2%, while in Tokyo, the Nikkei 225 Index shed 0.1%.
The global oversupply of oil has been exacerbated by rising oil inventories in the US, increased oil extraction in Russia and most OPEC nations, as well as Iran's increased oil export capacity due to the recently lifted sanctions. Eventually, the Brent benchmark dropped to $52.40/bbl in London, some 20% lower than its most recent peak in May. Oil is in a bear market, with further price falls expected.
The US dollar is rising against its major peers, as the US Federal Reserve is starting its two-day policy meeting on Tuesday. Fed chair Janet Yellen is expected to make clear whether the regulator will start its 'return to normality' in terms of base interest rate policy in September or December. Either way, though, the dollar is likely to retreat as soon as the Fed sends a clear signal to the market in regard to the timing issue.
Yields on US, UK and German bonds rose 0.02% as fixed income value dropped.
Even though the Chinese stock rout is still a concern, while weaker energy weighs on oil currencies, including the Loonie dollar and the rouble (down to 60.24 per dollar), the worst for the global markets is mostly over. The macro-determined fundamentals are playing an increasingly important role, meaning the GDP and international trade figures will draw most investors' attention in the short-to-mid term.
