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Europe flash PMIs improve, Ryanair lifts off after announcing pilots deal

As expected, the beginning of another $16bn of US tariffs on Chinese goods prompted China to enact similar measures on a range of US goods, as the trade stand-off between the two countries entered its next stage.

The preliminary trade talks that began in Washington yesterday with a view to restarting the negotiations look unlikely to yield too much in the way of progress as they enter a second day, with the US president, given his current political difficulties, unlikely to want to concede any further ground.

Last night's Fed minutes showed that policymakers remained confident in the prospects of a further rate hike when they convene next month, however the contents of the minutes do appear to suggest that officials are becoming concerned about the approach of a number of factors that might present risks to the US economy, including the current uncertainty about trade.

There was no indication that policymakers were becoming more concerned about the flattening of the US yield curve, though that might change in the coming days given that we’ve seen a further narrowing of 9 basis points, since the last Fed meeting.

Investors will be looking to Chairman Powell’s speech tomorrow at Jackson Hole for any indications of rising concern about the narrowing of this key indicator that historically has been an arbiter of an impending economic slowdown.

The confirmation that US policymakers remain confident in the economic outlook, and that a September rate rise remains, more or less a done deal has helped lend support to the US dollar, after the declines of the last five days.

While Asia markets have managed to put aside the start of today’s additional tariffs, markets in Europe are trading sideways this morning, though we have come off the back of a positive day yesterday.

The pound is likely to be in focus today ahead of the release of a raft of technical papers by the UK government which outline the various contingency plans that are being prepared in the event of a “no deal” Brexit.

Today’s flash manufacturing and services PMI’s for France and Germany are also set to give an insight into how the respective economies are doing after some weak readings in Q2. The industrial unrest that has blighted the French economy this year appears to have acted as a drag on economic output in Q2, if the recent GDP numbers are any guide. The July PMI’s showed that this drag has continued into Q3, so today’s improvements in the French numbers are an encouraging sign that we may well be starting to see recovery into the end of this year. Services improved to 55.77 from 54.9 and manufacturing came in at 53.7, up from 53.3.

The German numbers were also fairly positive coming in at 55.2 for services and 56.1 for manufacturing.

The latest minutes of the recent ECB governing council meeting could shed some light on how deep any divisions were on when markets could expect to see a rate rise next year. There had been a lot of speculation on what Draghi meant when he stated that interest rates would stay low “through the summer” with various interpretations as to whether we might get a rate rise at the beginning of Q3, or more towards the end of the quarter. We could well get an indication as to how contentious this was as well as whether there were any concerns about the lack of pickup in the wider economy after the slowdown in Q1.

Ryanair’s share price has jumped sharply on the back of this morning’s announcement that the pilots union has agreed a deal with management to break the deadlock. Hopefully this will bring to an end the huge disruption that passengers have experienced as a result of management’s confrontational approach to staff relations. Whether it will be enough to repair the damage to the brand in the wake of the company’s unsympathetic approach to stranding some of its passengers is another matter. A lot of people could well be reluctant to take a chance on travelling with Ryanair in the future given this year’s problems.

The construction sector is once again in the spotlight as Irish construction giant CRH announced its first half update. The company announced that sales were up 3% in the US, 1% in Europe and down 2% in Asia, despite disruptions from bad weather at the beginning of the year. Profit before tax rose 5% with the company saying that it expected to meet its guidance for this year.

Today’s news that the Saudi Aramco IPO has been put back hasn’t come as too much of a surprise given the difficulties that the float has encountered in gaining an overseas listing. Even without the difficulties of a 5% stake being below the free float requirement for London and concerns about litigation in New York, the valuation of $2trn was on the rich side given that any prospective shareholder would have absolutely no say in the corporate governance of the company. This IPO looks dead in the water from an international point of view, whatever the Saudis would have us believe publicly.

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