Equities are set to post another positive day even though trade tensions still linger. 

Europe

The positive momentum that stocks have enjoyed recently continues, even though the trade spat between the US and China could come to a head of at the G20 meeting later this month. Mr Trump claims that China will make a deal because they have to, and he made it clear that tariffs will go up on China’s imports if Xi Jinping doesn’t attend the summit. Investors are happy to jump on the bullish bandwagon for now, but the optimism might fade as the G20 meeting nears.   

Ted Baker shares have dropped to a level not seen since late 2012 after the company issued a profit warning. The fashion house faced an uncertain political and retail climate, which led to an increase in promotional activity, and that was part of the problem. The firm said that it expects profit to be between £50 million and £60 million, and that compares with analysts’ forecasts of £72 million. It is worth noting the company issued a profit warning in February, and earnings dropped in October 2018. Ted Baker hasn’t been the only retailer to get hurt by offering promotions, as savvy consumers seek out bargains, but in a race to the bottom, only the customer wins.

Crest Nicholson had so-so six months, as pre-tax profit dropped by 11%. The company previously complained about falling operating margins, and that continues to be the case, as the metric fell by 270 basis points to 14.1%. Skill shortages and rising building costs have been eating into profit margins across the industry. Some perspective house buyers are waiting until Brexit is wrapped up until making such a big purchase, and that is hanging over the entire sector. Forward sales jumped by 15%, and the company has introduced new schemes like pre-funded homes in a bid to reduce forward sales risk, and it is clearly working.

Halma reported a 13% rise in revenue to £1.21 billion – a record high, and that has been matched by a record high in the share price. Pre-tax profits rose by 20%, and the dividend was upped by 7%. The firm is clearly performing well and it hopes ‘to make good progress’ this year. Halma hasn’t seen any ‘material effects’ of the US-China trade dispute or from Brexit.

Bellway issued an upbeat trading update, and the house builder said it will deliver earnings growth in line with the board’s expectations.  

US

The major indices are extending their gains as traders are content to rise the wave of bullish sentiment even though the trade standoff with China has yet to be resolved. It seems that traders will worry about the US-China trading relationship closer to the G20 meeting, where Mr Trump is set to meet with China’s Xi Jinping.

US headline PPI cooled to 1.8% from 2% in May, and the core reading slipped to 2.3% from 2.4%. The decline in the core reading highlights the dip in underlying demand, and some traders will view that as a sign that the Federal Reserve should lower interest rates towards the end of the year.   

Beyond Meat shares have enjoyed a bullish run since it floated on the stock market last month, but not everyone is extremely optimistic, and JPMorgan have downgraded the stock. The Wall Street titan lowered its outlook for the company to neutral from overweight, but the price target was raised fractionally to $121. The investment bank feels the stock is currently overvalued, and that was the motivation for the downgrade.

CymaBay Therapeutics shares have slumped after a study of one of its drugs which is aimed at treating non-alcoholic steatohepatitis (NASH) only showed a small reduction in liver fat. There is currently no approved treatments for NASH, and the race is on to find a drug that works.   

FX

GBP/USD received a boost from the latest UK unemployment and earnings figures. The jobless rate remained at 3.8%, meeting economists’ forecasts, and average earnings were 3.4%, and that was an improvement on the 3.3% registered in March. The rise in wages suggests the labour market is strong, and that employers are having to pay up to get staff.

EUR/USD hasn’t moved much today as it was a quiet day in terms of economic announcements from the eurozone The sentix investor confidence report dropped to -3.3 from 5.3 in May. Given the political concerns about Italy, and the decline in inflation in the inflation the region, it’s no surprise that investor confidence is weak. 

Commodities

Gold has drifted lower again as traders have taken some of their money off the table. The metal enjoyed a major rally since late May, and now as the US dollar is standing still, rather than falling, the commodity is handing back some of its recent gains.

Oil is on balance a little higher this afternoon as some of the trade fears have melted away a little. Throughout 2019 there has been a high correlation between oil and global equities and that is playing out today. There is also speculation that some of the major oil producers will keep their production cuts in place.

 

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