Trade concerns continue to weigh on markets.
Europe
Since the US was on holiday yesterday, markets are picking up where they left off last week. President Trump is maintaining a tough line when it comes to trading with the EU, Canada and China. The US president is looking to row back on his earlier promise to try and remove trade barriers with the EU. Investors know how popular European cars are in the US, and they know how important the sector is to the European economy. The European auto sector is under pressure again, and is likely to remain so until a deal has been brokered between Brussels and the US.
DS Smith issued an upbeat first-quarter trading statement. The company confirmed that the cost saving scheme that was implemented earlier this year has helped the company perform ‘in line’ with expectations. DS Smith expects the takeover of Europac to be completed at the back end of this year. The firm said the increased popularity of e-commerce has changed customer habits, but they predict ‘excellent growth’ opportunities in the corrugated packing industry. The stock has been driving higher since April, and if the upward move continues it could target 540p.
WPP shares are lower today after the group posted a7.4% decline in profit before tax, but when you strip out currency movements it was only a 2.5% drop. The North American division saw a decline in second-quarter revenue, but all other regions registered growth. WPP predicts that full-year profit before interest and tax margin will be similar to the 0.4% decline that was incurred in the first six months. The interim dividend was left unchanged at 22.7p. The new CEO, Mark Read, will announce the company’s new strategy before the year is out. WPP has lost out to Google and Facebook as companies are using those outlets to advertise instead, and shareholders will be looking to Mr Read for a plan to tackle this issue.
US
Equities are lower amid deteriorating trading relations with Canada and China and the EU. Dealers are exiting their long positions in stocks as the mood this week is considerably different from the optimism that was circulating at the end of last week. President Trump is still committed to fixing the perceived wrongs of the North American Free Trade Agreement, and there is chatter he will impose tariffs on an additional $200 billion worth of Chinese imports. US indices had a great run in recent weeks, and today’s pullback is still relatively small.
The ISM manufacturing report rose from 58.1 in July to 61.3 in August – its highest reading since 2004. This underlines the strength of the US manufacturing sector, and it will add weight to the argument that the Federal Reserve should continue their policy of hiking interest rates.
FX
GBP/USD has come under attack from a number of different angles today. The continuation of the rebound in the US dollar was one factor. The UK construction PMI report slipped from 55.8 to 52.9 in August – a three month low. Mark Carney, the governor of the Bank of England (BoE) didn’t offer a clear message whether he will be staying in the role beyond June 2019. Mr Carney confirmed he is willing to ‘help’ but traders can’t do much with that. The UK economy is facing major political uncertainty and some clarity would be helpful. Mr Carney confirmed there will be an announcement in due course.
EUR/USD has also been hit by the firmer US dollar. Eurozone PPI in July hit 4% - a 15 month high. This could lead to higher inflation as producers are likely to pass on their costs to customers. Today’s update is in stark contrast to the slide in the eurozone inflation that we saw at the end of last week. The euro remains in the downtrend that began in April, and if the bearish move continues it could target 1.1500.
Commodities
Goldhas fallen to its lowest level in over one week on account of the firmer US dollar. The inverse relationship between gold and the greenback has been strong recently and the continuation of the rebound in the US dollar has hurt gold. The metal is firmly below the $1,200 mark, and if the bearish move continues it could target the $1,183 area.
WTI and Brent crude oil are in demand again as two oil rigs in the Gulf of Mexico were evacuated as the region prepares for a hurricane. The announcement comes amid concerns that future supplies will be hurt as traders await US imposed sanctions on Iran to kick in.
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