market relief

Stock markets are in positive territory as we approach the end of the trading week.

Europe

The mood is cautiously optimistic as the trade standoff between the US and China continues.

Hays had a strong finish to the year as the company announced a 15% rise in final-quarter fees. The recruitment company now anticipates full-year operating profit to be ‘marginally ahead’ of forecasts. The German division posted a 16% jump in net fees, and now the department accounts for a quarter of the company’s revenue. The update was a little cautious too, as CEO Alistair Cox confirmed the UK division has seen a ‘modest improvement’ despite economic uncertainty. The share price has been in an upward trend since June 2016, and if the positive move continues it could target 210p.

DCC shares are in demand after the company confirmed the first quarter was in line with the guidance. Profit was lifted after the company acquired two firms with a total enterprise value of £100 million. The acquisition of the US firm Stampede will assist the technology department and with expansion in North America. The stock has been broadly rising since March 2015, and if the bullish move continues it could target the 7,700 region.

Poundworld announced the closure of 80 shops, and that is in addition to the 25 store closures that were announced last month when the firm went into administration. Today’s announcement will affect over 1,000 jobs. Clare Boardman, one of the administrators, confirmed they are trying to sell parts of the firm as it is not possible to sell the business as a whole. The discount retailer is not the only one struggling on the high street as higher business rates and employment costs take their toll. 

US

US equity markets are mixed as banks kick-off earnings season. Traders booked some of their profits on US stocks after they had a strong finish yesterday. The trade spat with China is still bubbling away in the background, and remains at the forefront of traders’ minds. 

JPMorgan Chase posted record second-quarter earnings. Earnings per share (EPS) were $2.29, while analysts were expecting $2.22. It was the 14th consecutive quarter where EPS topped forecasts. The bank’s bond and equity trading departments comfortably exceeded forecasts, and this is encouraging to see as the dealing departments have been lacklustre in recent years. 

By contract, Wells Fargo failed to impress investors. Second-quarter EPS was $1.08, while traders were expecting $1.12. Net income was $5.19 billion and the consensus estimate was $5.47 billion. Community banking revenue slipped by 1.2%, and corporate and wholesale banking fell by 3.8%. 

FX

GBP/USD remains under pressure after President Trump attacked Theresa May’s handling of Brexit. The US president announced that if the UK pushes for a soft Brexit it would ‘probably kill’ any chance of a US-UK trade deal. Mr Trump praised Boris Johnson and suggested he would make a great prime minister. With two cabinet resignations this week, Theresa May has had a rough ride. The remarks from Trump put extra pressure on Mrs May and the pound. This afternoon however, the US president rowed back on his earlier comments, and he is now more optimistic about future US-UK trading relations.  

EUR/USD has been hit by the broad rally in the US dollar. Spanish inflation increased from 2.1% to 2.3% in June. The jump in the cost of living is encouraging to see as it suggests an increase in demand. Next week the eurozone will release inflation and core inflation reports for the currency bloc, and the latter will give us a good indication of underlying demand.  

Commodities

Gold touched a seven-month low today on the back of the strong US dollar. The metal has been in decline for three months and is showing no signs of halting the decline. The inverse relationship between gold and the US dollar and the bullish move in the greenback this year could keep pressure on the metal. If the bearish move in gold continues it could target $1,225.

WTI and Brent crude oil are still subdued after enduring severe losses on Wednesday. Excess supply concerns and worries about future demand from China are weighing on the oil markets. Given how far oil fell during the week, it is worrying that there hasn’t been much bargain hunting.

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