Equity markets are buoyant ahead of the US-China trade talks which commence on Wednesday. 

Europe

The US and China remain locked in a trade spat and given the slump in the Chinese stock market and the renminbi in recent months, you could argue the US has the upper hand. The Chinese authorities have instructed banks to beef up lending to exporters and for infrastructure projects as a way of keeping the economic momentum going. It is crucial that Beijing don’t come across as weak and a veneer of economic strengthen must be kept up. Mining stocks like Rio Tinto, Anglo American and BHP Billiton are in demand due to the optimistic sentiment surrounding China.    

The Turkish lira is weaker again today as the downgrading of Turkey’s debt by S&P and Moody’s has hurt the currency. The harder the Turkish government finds it to borrow money, the harder it will be for Turkish banks to raise funds, and it would not be a surprise if the country’s banks were hit with downgrades themselves.  

Sage shares are in the red after Deutsche Bank downgraded the stock to ‘sell’. According to the German bank, Sage’s competitors are gaining ground on the company, and the mid-market franchise is ‘worsening’. The stock has been in decline since January, and if its breaks below 620p – the 200-day moving average – it could target 600p.

According to Rightmove, average asking prices for UK houses have dropped by 2.3%. Individuals looking to sell their homes launched a ‘late summer sale’ in an effort to obtain a faster sale. It is worth noting that there was a 0.1% fall in July. The announcement put pressure on house builders like Persimmon, Berkeley Group and Taylor Wimpey, and it worth remembering that Persimmon will announce their first-half figures tomorrow. 

US

Stocks are higher on the session as traders are cautiously optimistic about the US-China trade discussions which are due to kick-off on Wednesday. US stocks have outperformed their Asian and European counterparts. It is fair to say the US economy remains in rude health despite the trade spat with China, and the strength of the US indices has made them more attractive from a ‘flight-to-quality’ prospective.

Tesla shares are in the red after JPMorgan cut its price target to $195 from $308. The move comes as investors are getting increasingly anxious about Elon Musk’s ability to run the company. Mr Musk, has yet to prove he has the funding secured to take the company private at $420, and if he can’t backup the claim he could be in trouble with the regulator. The negative press he has attracted in recent months, has prompted shareholders to question his ability to run the company.

FX

The US dollar index has resumed its upward trend today. The greenback hit a 14 month high last week as the uncertainty over Turkey, and the tightening policy of the Federal Reserve have made the greenback more attractive.

EUR/USD is in the red on account of the firmer greenback. It has been a quiet day in terms of economic indicators from the eurozone, and the only significant announcement was the German PPI report. The update came in at 3% on an annual basis, unchanged on the month, and in line with expectations. It was the joint highest reading in nearly a year, and that is likely to keep CPI elevated, as producers are likely to pass on their costs.   

GBP/USD is a touch higher today as traders are swooping in and snapping up the relatively cheap pound. The rally in the greenback couldn’t hold back the pound today which is a positive sign, but uncertainty regarding Brexit still hangs over the currency.

Commodities

Gold is bouncing back after suffering a severe sell-off last week. The metal has managed to move higher despite the stronger US dollar. For today at least, the metal has managed to overcome the inverse relationship it has with the greenback. If the bounce-back continues it could target the $1,200 area. 

WTI and Brent crude oil are higher today after Iran announced that no OPEC member should be allowed to take over another member’s share of the output. This follows Saudi Arabia’s decision to increase output as Iran will face US sanctions. The Saudi’s have a good relationship with the US and President Trump is keen to have a weaker oil price as it better for business.

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