After a pretty turbulent session US markets managed to close in positive territory last night but the gains fell well short of reversing the losses from earlier in the week.
Asia markets finished another trading week in negative territory, though we do seem to have started to see some buying creep back in with the Hang Seng finishing higher for the second day in a row, despite the unrest in Hong Kong showing little sign of subsiding, and trade concerns still front and centre.
Chinese stocks also finished the day higher, and this firmer tone has translated into a positive open here in Europe, with the DAX and CAC40 both opening higher, while the London open has been delayed due to a technical trading issue, though it should open higher if the current rebound in sentiment holds.
The last time we saw the London start delayed due to a technical issue was the 7th June 2018, when trading started at 9am.
Despite the positive start today it seems unlikely that it will be enough to prevent another negative week for European markets, with the move higher this morning being helped by the US yield curve moving out of inversion on the 2/10, and the 30 year yield moving back above 2%.
Nothing we’ve heard over the last few days has come close to changing investor concerns that the global economy is on the cusp of a sharp slowdown, and if anything a lot of the data has only served to reinforce those fears.
A collapse in yields and a rise in negative yielding debt has created a perfect storm of flows into safe havens, with cyclical growth stocks bearing the brunt of the losses these past few weeks.
A call by ECB policymaker and Finnish Central bank chief Olli Rehn that the central bank needed to come up with an “impactful and significant” stimulus package when it meets in September has seen the euro come under pressure, but hasn’t provided much support for equity markets in general, in contrast to previous calls when central bank stimulus has tended to do just that.
Banks in particular have been battered with Commerzbank and Deutsche Bank both closing at record lows this week, with the Eurostoxx Banks index closing in on the all-time lows that we saw at the height of the Eurozone debt crisis in 2012. Losses in banks accelerated yesterday in the wake of the call by Rehn to over deliver when it comes to stimulus.
The problem for the ECB is that monetary policy is already extraordinarily loose, which is why the banks are struggling, and as such it’s hard to see what any effect any further stimulus might have, apart from threaten the stability of the banking sector in Europe even further.
Ryanair shares are down sharply to their lowest levels since November 2014 on the back of a broker downgrade against a backdrop of rising concerns about disruption caused by industrial relation disputes, as well as continued fall out from the groundings of the Boeing 737 MAX.
The pound has continued to regain ground against the euro, and could well be on the cusp of its best run of gains against the single currency since April as traders continue to pare back short positions against a euro that could weaken even further if the ECB delivers on a massive stimulus package in September.
US markets also look set to follow suit with a positive open, helped in some small part by decent earnings reports from Nvidia and Walmart. Walmart showed decent gains as a result of beating expectations on revenues and profits, while also raising its guidance for the year.
Nvidia reported revenues for Q2 that beat expectations, coming in at $2.58bn and profits at $1.24c driven by a rebound in demand for gaming graphics chips, as well as chips for data centres.
We’ll also get to see the latest numbers from Deere and Co. Trade and tariff concerns are again a key factor for companies like Deere who make agricultural machinery for farmers. US farmers have found markets for their product that much more limited in the wake of President Trump’s tariff attacks. In May the company warned that 2019 was likely to be a tough one, after reporting $10.3bn in Q2 in numbers that missed expectations.
As a result the company cut its full year forecast due to concerns over the effects that lower crop prices were likely to have on its margins. The ongoing US trade spat with China has also hit US farmers profit potential and that is likely to act as a headwind as well.
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