Trade concerns and disappointing manufacturing figures from China have hit the FTSE 100 hard. 

Europe

The latest round of tough rhetoric from the US regarding its trading relationship with China has rattled investor confidence. The Caixin survey of Chinese manufacturing fell to 50.8 in July, down from 51 in June. The slowdown in the growth rate put pressure on copper, and in turn on mining stocks like Rio Tinto, BHPBilliton and Glencore.

Lloyds shares are in demand after the group posted a 23% jump in first-half pre-tax profits. Unfortunately the bank set aside £460 million for the mis-selling of payment protection insurance (PPI). Lloyds anticipates that PPI claims will ramp up as we approach the August 2019 deadline. The company confirmed that the net margin rate is 2.93% – this is the difference between the rate it lends money at and the rate if offers to depositors. The share price has moved above 62.8p, its 50-day moving average, and if it can hold above this level it could push higher.

Capita Group reported a 4% fall in revenue and a 58% fall in underlying profits before tax. The firm has a ‘long’ recovery ahead of it, but it is ‘confident’ of a turnaround. The restructuring process has seen costs cut, and net debt has been slashed by 54%. The stock has been losing ground for three years, and if the bearish move continues, it could target 125p.

Rio Tinto revealed a record interim dividend of $2.2 billion and also announced a $4 billion share buyback scheme. The mining giant used cash from asset disposals to return funds to shareholders. Net debt rose by 36%, and this is concerning in light of the generous dividend. Other mining companies have been keen to cut debt, and it appears that Rio Tinto is determined to keep shareholders happy. 

Volkswagen warned that the Worldwide Harmonised Light Vehicle Test Procedure is the biggest threat to earnings. The car manufacturer cautioned against the rise in protectionist policies. The firm confirmed it took a €1.6 billion hit regarding the diesel emissions scandal, and taking that into account, operating profit fell by 13.2%.  

US

The NASDAQ 100 is in positive territory and is outperforming the Dow Jones and S&P 500, thanks to the record high in Apple shares. The smartphone maker posted impressive numbers last night. Quarterly revenue jumped by 17% and profit rose by 32%.

The Federal Reserve will announce their latest interest rate decision tonight at 7pm (UK time). No change to the monetary policy is expected. There has been growing speculation that the US central bank will hike rates in September and December, and traders will be listening to try and figure out how many more interest rate hikes the Fed could deliver in 2018.

The ADP employment report showed that 219,000 jobs were added in July, which comfortably topped the consensus estimate of 185,000. The number was a big improvement on June’s 177,000. This will set the tone for the non-farm payrolls report that is due out on Friday.   

FX

The US dollar index is a little higher ahead of the Fed meeting later. It is likely to experience low volatility in the run up to the meeting.

EUR/USD is a little weaker on account of the underwhelming manufacturing data from a number of eurozone countries this morning. Germany, Italy and Spain all revealed manufacturing figures which showed that growth cooled in July.

GBP/USD is largely unchanged this afternoon. The latest manufacturing PMI report from the UK came in at 54, which was just shy of the 54.2 that economists were expecting. The June report was revised lower to 54.3 from 54.4. This mediocre update kept the pound under pressure today.

Commodities

Gold is in the red as traders await the Fed’s update. The slightly stronger US dollar is playing a role in gold’s decline too. The metal has been losing ground since April, and if the bearish move continues it could target $1,204.

WTI and Brent crude oil saw a spike in volatility on the back of the Energy Information Administration report being released. US oil inventories jumped by 3.8 million barrels, while the consensus was for a decline of 3 million barrels. US gasoline stockpiles dropped by 2.53 million barrels, and the consensus estimate was for a 1.1 million barrel decline.    

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