Europe

It’s been another bad day for European markets with the FTSE100 down for the fourth day in succession, while the rest of Europe has also posted large weekly losses, after President Trump threw all the trade chess pieces up into the air, by announcing that he intended to implement a 10% tariff on the remaining $300bn worth of Chinese goods, from 1st September.

This prompted a counter response from China, though they were careful not to pre-commit to anything specific. While stock markets have plunged global bond prices have surged, sending yields even lower.

On the earnings front we’ve seen Royal Bank of Scotland surprise the markets with some pretty decent numbers for Q2, as well as announcing a special dividend of 12p a share, securing a windfall for the UK taxpayer of about £1bn.

Overall profits beat expectations, coming in at £1.3bn, well above the £96m we saw in the same quarter last year, and also above Q1’s numbers when the UK economy was much more resilient.

None of this has been enough to stop a sharp sell-off after management warned about the outlook, and it became apparent that a lot of the improvement in profits was as a result of the completion of the recent merger with Saudi bank Alawwal.

Sliding bond yields haven’t helped either as the prospect of flattening yield curves and narrow interest rate margins has seen financials get clobbered hard, with Asia focussed stocks feeling the heat more than most, with Prudential, Standard Chartered and HSBC falling back sharply.

With pessimism higher around the travel sector it was with some surprise that British Airways owner IAG bucked that trend when it came to today’s market sell off after reporting operating profits that beat expectations, and has seen the shares rally strongly from 2 and a half year lows.

In the three months to June the company saw an 18% increase in profits to €960m, helped by a decent increase in passenger revenue of 7.2%. passenger revenue per seat also rose 1.3% as the company benefitted from its diverse set of brands from Aer Lingus, to Vueling.

The company also said it expected to meet last year’s profits number. The elephant in the room remains the company’s dispute with its pilots, which CEO Willie Walsh said he hoped would be resolved quite quickly.

BT Group has also announced its latest Q1 trading update, with revenue down 1% to £5.63bn, down 1% from a year ago. Profits after tax have also come in lower at £505m.

The revenue declines have come across all of the business, with enterprise and global showing the biggest declines.  The company’s Openreach division did show an improvement with a 1% rise in revenues to £1.27bn.

Overall the numbers were slightly better than forecasts due to a continued focus on cost cutting as new CEO Philip Jansen looks to gear the company up for the roll out of 5G and all the challenges that is likely to entail.

Thomas Cook shares have continued their recent surge, up for the third day in a row, after it was revealed that Turkey based Anex Tour upped its stake to 8.01% from the 6.71% reported earlier in the week.  

US

US markets opened sharply lower today, following on from the weakness seen in European markets, as nervousness over China, US trade kept investors on the back foot.

The threat of Chinese retaliation has prompted further falls with tech companies showing further weakness, with chipmakers some of the biggest losses, with Advanced Micro Devices, Intel and Nvidia under pressure. Apple shares have also slipped back, hitting a one week low in the process.

The latest payrolls numbers showed that the US economy added 164k jobs in July, while wages grew at 3.2%. On any other day these would be seen as fairly decent numbers, not too hot and not too cold, with wages continuing to remain solid. On a day like today they don’t matter at all with concerns about trade the main factor driving risk premia.

Ferrari shares are also falling after the company reported lower than expected deliveries in Q2, relative to Q1, which caused the company to slightly miss expectations on profits by $1m, coming in at $314m. Full year guidance was left unchanged at the upper end of existing ranges, however given how much the shares have rallied this year, it would appear that investors are using this as an opportunity to take some money off the table.

Recent earnings from global oil companies have been a little disappointing over the last week or so, with BP, being a notable exception, thus far. Exxon Mobil also appears to have put in a decent quarter, taking advantage of higher production output. Profits came at $0.73c a share, above estimates of $0.66c, on revenues of $69.1bn. Crude oil output showed a decent increase, as a result of investment in new projects, while upstream the company saw a rise of 8% in liquids production. 

Pinterest shares have jumped higher on the open after reporting a 62% rise in revenues, to $261m, while also raising its full year guidance. Losses came in at $0.06c a share below market expectations of $0.08c

FX

It’s been a day for havens with the Swiss franc and Japanese yen the best performers on the day. The Swiss franc has hit a two year high, and could well go even higher if as expected the European Central Bank takes further steps to ease monetary policy in the coming weeks. 

The US dollar didn’t react that much to the latest US payrolls reports, despite wages ticking higher to 3.2%, while adding 164k new jobs in July. The report certainly wasn’t strong enough to change market expectations about what the US Federal Reserve is expected to do at its September meeting. These have shifted markedly in the last 24 hours in the aftermath of the President’s tweet last night.

Before the tweet markets assigned a 62.7% probability that the Fed would cut rates by 0.25bp at its September meeting, and this has shifted to a 100% probability in the wake of that tweet.

That’s quite a shift against a backdrop where these extra tariffs, if implemented, could undermine US consumer confidence and send it back to the lowest levels this year.

The pound has seen little reaction to the latest by-election result in Brecon which saw the Conservatives lose another MP, shaving their working majority down even further. Overall it’s been an awful week for sterling, hitting two year lows against the euro and US dollar, and near to record lows against a basket of currencies, with little expectation of a rebound in the near future as the noise levels over a no-deal Brexit get louder and louder. 

Commodities

We’ve seen a decent rebound in crude oil prices today, but that pales into insignificance in comparison to yesterday’s price collapse. There is currently big support at $60 a barrel for Brent prices. If the macro environment continues to deteriorate then there is a risk that we could head towards key support levels, and push towards the lows this year.

Gold prices have recovered from their daily lows and look set to close near their weekly highs, as markets tack close to traditional safe haven plays.

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