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European stocks tread water as market mulls next central bank move

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After yesterday’s topsy turvy session markets in Europe have found upside progress slightly trickier to maintain today, with the FTSE 100 outperforming on the back of gains in real estate and the energy sector.

Europe

Top of the FTSE 100 today have been commercial real estate stocks British Land and Land Securities, after JPMorgan upgraded its ratings on the pair to overweight, on expectations that when the UK economy fully reopens footfall should recover over the next few months. It was also being reported that British Land was in talks to sell its £1.3bn stake in Paddington Central.

It would appear that JPMorgan has been busy, naming Royal Dutch Shell as its top pick in the oil and gas sector, on the basis of its cash generation potential with oil prices well above $60 a barrel. On a day when oil prices nudged above $75 a barrel, this is the sort of narrative that markets like, with some investors also hoping that recent stories that the company is considering selling some of its Permian Basin assets have some substance behind them.  

Melrose Industries is also higher after announcing the disposal of its Nortek Air Management division for £2.62bn, while confirming the return of £730m in cash to shareholders in the form of a special dividend of 15p per share. The company said it was trading in line with expectations ahead of its interim results next week.  

Bottom of the index is packaging company DS Smith, after reporting that full-year revenue fell 1% to £5.975bn, with profit-before-tax falling 37% to £231m. The second half performance was much better than the first however, with H2 operating profit rising to £272m, up from £231m in the first six months. In terms of the outlook, while rising costs hampered profitability in the first half of the year, and are still proving to be a headwind, the current financial year has seen a solid beginning, with management insisting that those additional costs would be recovered.

US

After the gains of yesterday US markets have held on to their gains and are trading cautiously as investors look towards tonight’s testimony from Fed chair Jay Powell, and some dovish commentary from New York Fed President John Williams. His stance on tapering and rate rises stands in contrast to the more hawkish tone of his St. Louis counterpart James Bullard.

On the data front, existing home sales declined for the fourth month in a row, however the declines have continued to slow, dropping 0.9% in May.

The fall in bitcoin below the $30,000 level has seen MicroStrategy shares come under further pressure falling for the second day in succession, over concerns that it may have to write-down the value of its holdings in the cryptocurrency by several million dollars. The company has been heavily investing in cryptocurrency and thus far has seen the value of its holdings fall by more than $500m. Coinbase shares have also continued to drop heading back towards last month’s record lows, at $208.

On the upside, GameStop shares are higher after the video game store managed to raise another $1.1bn in a share sale.

FX

After yesterday’s modest sell-off the US dollar appears to be retesting its recent peaks, with the Australian dollar losing the most ground after China said it would be releasing 20,000 tons of copper from its state reserves.

Currencies more broadly are treading water, after the head of the New York Fed John Williams signalled that he considered that inflation was transitory and he was more concerned about the health of the labour market, and in particular the participation rate, which thus far has struggled to rebound much beyond its recent peaks at 61.7%.    

Commodities

Copper prices shrugged off the news that China was looking to sell off 20,000 tons from state reserves on July 5 and 6.

Bitcoin prices have also continued to fall, dropping below the $30,000 level for the first time since January, dragging the rest of the crypto space with it as the fallout from the Chinese crackdown continued to undermine sentiment.

Crude oil briefly poked its head up above the $75 a barrel level earlier today, before retreating on reports that Russia was looking to boost production when Opec+ meets next week. 


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