Stock markets in Europe have rallied today as the macroeconomic backdrop has improved a little. 

Europe

Last week, we saw that Germany’s economy contracted, and now there is chatter the country will set aside €50 billion as a stimulus package. Given how prudent the German government are, even the possibility of a stimulus package says they mean business. In a bid to combat their cooling economy, the People’s Bank of China will bring in lending reforms to make it cheaper for companies to borrow, and that has helped the rally too.

Mitie Group issued a few profit warnings between 2016 and 2017, and that share price suffered greatly as a result. The company has been going through a turnaround scheme, and today the group revealed plans to dispose of its catering business for up to £85 million. The cash raised from the transaction will be used to pay down debt, and the group will focus on the core business. The stock has been broadly pushing higher since December, and if the positive move continues it might target the 180p region.

Ocado shares are in demand today, and the stock was given a lift by JPMorgan who raised their price target for the stock to 1,073p from 1,070p.

UBS upped their outlook for CYBG to buy from neutral, but the bank also cut the price target to 170p from 195p.      

US

The decision by the Trump administration to allow Huawei 90 days to keep buying from US suppliers has added to the positive move in stock markets. Not only does it help US tech companies, it sends a positive message to Beijing that they are willing to be reasonable, and that is a step forward in US-China relations. Both sides are due to meet next month, but Mr Trump has already claimed he is not ready to do a deal yet, but actions speak louder than words.   

Estee Lauder shares are in demand on the back of the strong quarterly results. EPS came in at 64 cents, which comfortably topped the 53 cents forecast. Net sales for the period jumped by 9% to $3.59 billion, which exceeded the $3.53 billion forecast. The outlook was impressive too as the group expects full-year revenue to increase by between 7% and 8% while analysts were expecting an increase of 6.87%. The group anticipates full-year EPS to be between $5.90 and $5.98, while the consensus estimate was $5.81.  

FX

EUR/USD hasn’t moved much today even though the eurozone posted disappointing inflation figures. The headline CPI rate for July was revised lower to 1% from 1.1%, on an annual basis. The report showed a 0.5% decline on a monthly basis, which was a big fall from the 0.2% posted in June. The reports point to a fall-off in demand, and that doesn’t bode well for the region. There is speculation the European Central Bank will loosen monetary policy next month, and today’s inflation report adds weight to that argument.

GBP/USD has given up some of the gains that were made at the back end of last week. Concerns about the possibility of a no-deal Brexit are still doing the rounds especially with ‘operation yellowhammer’ circulating in the news. The currency pair has been bouncing back for one week, and if it holds above last week’s low, it might retest the 1.2200 region.     

Commodities

Gold is in the red today as traders are shying away from assets that are deemed to be lower-risk .The metal has enjoyed a stellar run recently on account of the turbulence in the global equity markets, and today we are seeing a small reversal. Gold’s move to the downside is small when compared with the surge in stocks in Europe and the US, which underlies the resilience in the metal.    

Oil is higher today on account of the heightened tensions in the Middle East. An oilfield in Saudi Arabia came under attack from Yemeni separatists, and that raised the temperature of the mood in the region. The wider bullish move in the markets on the back of Chinese banking reforms and the possibility of a stimulus from Germany, and the Trump’s stance on Huawei, are helping the energy market too.     

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