Stock markets slumped today as the drop in Chinese yuan is being viewed as retaliation by the Chinese government against the US.
Europe
The Peoples Bank of China (PBoC) let the market forces weigh on the yuan, and it dropped below the 7 mark against the US dollar. The PBoC have previously propped up the yuan, and their inaction has been seen as currency manipulation in the eyes of President Trump. To make matters worse, the Beijing authorities instructed state controlled firms not to purchase US agricultural goods. The trade war is heating up, and dealers are fearful the dispute will drag on for the foreseeable future. China is a major buyer of metals and oil, and in turn mining and energy stocks have suffered today over fears that China’s demand for commodities will dip on account of the trade rift with the US.
HSBC’s CEO John Flint caught traders by surprise when he announced he will be stepping down. The announcement comes at a time when the banking industry is dealing with a ‘challenging global environment’. The bank will cut up to 4,700 jobs also in a bid to become leaner. HSBC’s US unit has been underperforming, and today the bank said it won’t achieve its profit target for the division, and that is weighing on the stock too.
In bid to introduce a ‘leaner management structure’, Tesco will cut approximately 4,500 jobs across its 153 Metro stores .The is a continuation of the restructuring plan in the face of tougher competition from Lidl and Aldi. The stores will be hold smaller stockpiles in the storage rooms, and staff will work more flexibly too.
Aerospace supplier Senior, have been caught up in the scandal involving the Boeing 737 max aircraft, and the group registered a 16% fall in first-half profit. Today’s news wasn’t exactly a shock as it cautioned that profit margins would be hit on account of the Boeing situation. Traders remain cautious of the company as management warned about the ‘current geopolitical and macroeconomic backdrop’.
Quilter announced plans to sell-off its lift assurance business for £425 million, and the planned disposal of the unit is a part of the group’s strategy to focus on core elements of the business like wealth management. The company confirmed that assets under management edged up by 8%.
US
The S&P 500 and NASDAQ 100 have been hit hard by the rising trade tensions. Chinese e-commerce stocks like Alibaba and JD.com are suffering as traders are concerned the trade war will take its toll on consumer’s appetite. The Chinese economy has been cooling, and the subdued services PMI report overnight underlines the slide in economic activity. The US-China trade spat has a technological element to it in relation to Huawei, and today the likes of Intel, Micron Technology and NVIDIA have unperformed. Apple products could become a lot more costly if the new tariffs are introduced by the US, and the sock is in the red. Deere shares have suffered today on the back of the agricultural import ban that was announced by the Beijing authorities.
FX
The US dollar index is in the red as traders feel the Fed are likely to lower rates again later this year. The central bank cut rates last week, and in light of the fresh trade escalation between the US and China, traders are dumping the dollar.
EUR/USD has been boosted by the soft US dollar. France and Germany posted service PMI readings of 52.6 and 54.5 respectively, and economists were expecting 52.2 and 55.4 respectively. The so-so economic reports were shrugged off by traders as the weak dollar took precedence.
GBP/USD has also been lifted by the softer US dollar. The UK services PMI report came in at 51.4 in July, which was a decent improvement on June’s 50.2. Today’s reading was the highest since October 2018, but the fear of a no-deal Brexit is still doing the rounds.
Commodities
Gold has racked up another six year high as the drop in the US dollar combined with the flight to quality drive has propped up the market. Gold continues its bullish run of recent months, and while it holds above the $1 400 mark, the broader positive move should continue.
Oil is in the red again as the trade war concerns have weighed on the commodity. China is a major importer of energy and the sour US-China trade relations has dented the energy market. When the two largest economies in the world are locked in a trade spat, it likely to hurt the global economy, and the fact that Germany’s manufacturing sector has been in contraction throughout 2019 highlights the knock-on effect.
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