Europe

European stocks have picked up from last night’s strong US finish, with the DAX and Euro Stoxx 50 pushing up to a one month high along with the FTSE250, as a weaker euro and pound help generate some decent buying interest.

It started out looking like a decent day for Easyjet after their latest trading update, however after a strong start the shares slipped back to close only modestly higher. The rise in crude oil prices over the past 12 months doesn’t appear to have hit margins at Easyjet, and while costs are rising the airline still posted Q3 numbers that came in better than expected. All the main metrics saw decent improvements, with add-ons, like seat allocation, doing particularly well. Management were also optimistic about guidance saying they expected to grow full year capacity by 4.5%, while increasing profit guidance from £550m to £590m. Revenues in the latest quarter came in at £1.6bn, with revenue per seat rising 4.8%.

Despite getting a World Cup boost GVC, owner of Ladbrokes and Coral has seen its share price slip back today, not too surprising given that it closed at all-time highs only yesterday. A case of buy the rumour, sell the news perhaps.  Revenues saw an increase of 11%, with the on-line operation boasting a 22% increase in income. Footfall on the high street was consistent with the overall retail theme this year of more on line activity and less turnover from high street outlets. Investor disappointment appears to be as a result of the decision to keep its guidance unchanged despite a better than expected first half of the year. This reluctance to up its guidance despite a better than expected first half would seem to suggest that management aren’t as optimistic about the second half of the year.

Medical devices company Smiths Group has also stumbled today after reporting trading that it expected its full year results to take a hit from its medical devices division, and recent new EU regulation, which has resulted in the company having to suspend some of its products for use in Europe.  While the rest of its business appears to be showing an upward improvement, the difficulties over the suspension has prompted management to downgrade its guidance for that part of the business over the full year.

US

US markets reopened fairly close to where they left off yesterday, despite some more decent earnings announcements, this time from Morgan Stanley which followed in the footsteps of JP Morgan and Goldman Sachs in blowing away expectations on both revenues and profits. Q2 profits came in at $1.30c a share, while net revenues came in at $10.6bn, well above expectations of $10.1bn. Improvement was seen across all of the banks major profit centres, with trading as well as its M&A underwriting division doing particularly well.

Alphabet shares are in focus on the news that the EU has lined up a record fine of €4.5bn on Google for abusing its position with respect to its Android operating system which it says unfairly discriminates against third party software and apps on its architecture. Google has said it will appeal, but it will still be expected to abide by the 90 day ruling to comply with the order to unbundle or change the way it promotes its browser and search apps within the Android architecture.

In a way Google has become a victim of its own success in terms of its search and marketing capabilities, with little in the way of alternative search and browser options available. In terms of browsing there is Firefox, Opera and Microsoft Edge, however search options are more limited, with Yahoo and Bing the more well-known names.

The solution is likely to be something similar to the solution which Microsoft implemented a few years ago when it had to unbundle Internet Explorer from its operating system to comply with similar EU antitrust rules, allowing the user to choose their own search and browse options.

Fed chair Jerome Powell’s second day of testimony didn’t provide too much in the way of surprises in the wake of yesterday’s positive comments, as investors look ahead to tonight’s June Beige Book, which after today’s disappointing housing starts and building permits data will be examined for other areas of possible weakness.

Amazon was able to put its initial teething problems behind it with respect to its Prime Day by announcing that it was its biggest shopping event ever. 

FX

The pound has remained under pressure after yesterday’s political shenanigans in Westminster as concerns rise over the government’s ability to deliver any meaningful and unified position on Brexit between now and October.

Today’s UK inflation numbers unexpectedly came in unchanged at 2.4%, as cheaper clothes and computer games offset a sharp rise in fuel prices which rose to their highest level since September 2014. While this is welcome news, most people probably won’t feel the effects, particularly those ones who don’t play computer games.  Core inflation also slipped back below 2% to 1.9% and its lowest level since March 2017. As a result the pound has continued to slide, worrying news for UK policymakers given that a lower pound exerts upward pressure on inflation. While some would argue that the weak inflation makes it less likely the bank will move next month, the fact remains inflation remains above target, and doing nothing could see further sterling weakness, which in turn would put upward pressure on prices. As such it is still probable that the Bank of England will push rates higher next month, in the absence of any data or political shocks between now and then.    

Commodities

Gold has fallen to a new one year low as the strength of the US dollar continues to exert downward pressure on the yellow metal.

Oil prices have struggled to rebound after two days of falls after the latest API data showed a surprise rise of 600k in US inventory. It has been reported that Saudi officials have told OPEC that July output are on course for output to come in above the levels of June.

In the wake of the US unilaterally reimposing sanctions on Iran’s output of 3.8m barrels markets may have assumed that this loss of output would be difficult to replace. This is no doubt true given the limited spare capacity in the market, but that assumes that Iran is unable to find another market, which doesn’t seem likely given that they could send their output to China, and it’s unlikely the US would be able to do much about it, meaning that Chinese demand for other OPEC oil would decline.

The recent rise in US prices appears to have prompted a big ramp up in US production levels to 11m barrels a day, a rise of 0.9% which may help explains why today’s EIA inventory saw a rise of 5.8m barrels against an expectation of a draw of 4.1m barrels.

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