Equities are under major pressure as trade tensions escalate. 

Europe

The US and China are squaring off over trade and dealers won’t want to get caught in the crossfire. The more entrenched both sides are, the more fearful investors will become.

Debenhams shares sold-off today after the company issued its third profit warning of 2018. The retailer now anticipates full-year pre-tax profits to be £35-£40 million, and that compares with analysts’ forecasts of £50.3 million. Debenhams blamed ‘competitor discounting and weakness in key markets’ for the profit warning. They are not the only retailer struggling, as an environment of higher rates and aggressive price cutting has causing a lot of pain for high street fashion houses. The share price fell to a level not seen in over a decade, and if the bearish move continues it could target 10p.

Captia Group has won a contract from the Ministry of Defence. The group will run the British military’s fire and rescue service at 78 defence stations in the UK and abroad. The company announced the sales of its supplier assessment services unit for £160 million, and the cash will help pay off debt. Last month, Capital enjoyed a major uptake in its rights issue, and the money will be used to beef up the balance sheet. The stock has been edging up since April, and if the bullish move continues it could target 215p.

Ashtead shares are lower today even though the company posted a respectable set of full-year figures. Earnings per share rose by 22.2% to 126.9p, but analysts were anticipating 131p. Revenue jumped by 17.8% to £3.41 billion, which was just shy of the £3.6 billion that traders were expecting. Ashtead expanded its operation in Canada, and this incurred one-off costs. Traders used the slightly-worse-than-expected figures and higher costs as an excuse to exit the stock. The share price enjoyed a rally of 30% from the low in March until the high in June. The stock has been in an upward trend since February 2016 and if the wider bullish trend continues it could target 2,400p.

US

Stocks are firmly lower today as traders are worried about trade tensions between the US and China. President Trump is eyeing up a fresh round of tariffs on $200 billion worth of US goods, and Beijing confirmed they will retaliate should they be implemented.

Traders are worried as it appears that both sides are upping the ante. The trading relationship between the two sides is souring and traders are concerned it could turn into a full-blown trade war. At the moment, the state of play seems to be going one way, and investors are seeking out safe-haven assets like government bonds.

The latest US housing data was largely positive. Housing starts in May were 1.35 million, which topped the consensus estimate of 1.31 million. Building permits were 1.3 million, while economists were anticipating 1.35 million.

FX

The US dollar index hit its highest level since July 2017 as trade tensions ratcheted up. Protectionist policies have a track record of driving up inflation and that is pushing up the greenback.

EUR/USD is softer on account of the firmer US dollar, and comments from Mario Draghi, the European Central Bank (ECB) president, didn’t encourage any buying of the single currency. Mr Draghi stressed that timing will be important for the first rate rise. The ECB chief suggested last week that there won’t be a rate hike until at least the back end of 2019.

GBP/USD is also suffering at the hands of the stronger US dollar. There were no major economic announcements from the UK today. Traders will be focusing on the Bank of England meeting on Thursday. The policy is tipped to remain unchanged, but the voting breakdown and the statement could provide clues about future monetary policy. 

Commodities

Gold has fallen to a fresh six-month low due to the rally in the US dollar. The metal has been in a downward trend since early April, and if the negative move continues it could target $1,260. While Trump is talking tough in relation to trade, we could see pressure remain on gold due to the inverse relationship it has with the US dollar.

WTI and Brent Crude oil are lower today as there is still talk that Saudi Arabia and Russia are keen to raise output. The concern about a trade war is also putting pressure on oil as it could bring about slower economic growth, and in turn the demand for oil could fall.

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