Equity markets are set to finish lower on the day as trade and political tensions are weighing on stocks. 

Europe

Washington DC and Beijing are still locked in their trade spat, and President Trump has reiterated that he believes that China will make a trade deal. The situation with Iran has become tenser in light of the attack on two oil tankers, and Mr Trump will hold his tough stance on Iran as he feels they were behind the attack. The environment of strained geopolitical tensions has contributed to the International Energy Agency (IEA) cutting its oil demand forecast to its lowest in two years. Investors are growing more concerned that the trade dispute between the US and China will end up weighing on global demand.    

Kier Group said it is considering selling its housing division, and the announcement sent the shares sharply lower. At the back end of the last year, the group had a poorly received rights issue, and earlier this month it revealed a profit warning. The move to offload the home building division is prudent as it margins in the sector are under pressure, and the firm could use the cash to pay down debt. Trader are petrified that Kier will turn into an Interserve or even a Carillion, and any sign of weakness spooks investors.

SThree shares are higher this afternoon after the firm said that first-half net fees by 9%. Continental Europe and the US outperformed as net fees rose by 13%, while the UK and Ireland posted a drop of 9% in net fees for the six month period. The recruiter cited Brexit uncertainty for the disappointing UK and Ireland update, but there are some signs that companies are holding off on expansions due to the lack of political clarity. Brexit can’t be blamed for everything, as the Irish and British jobs markets are strong.     

BHP Billiton, Rio Tinto and Anglo American shares are in the red after there some mixed economic updates from China this morning. Industrial production and fixed asset investment were 5% and 5.6% respectively, while economists were expecting 5.4% and 6.1% respectively. China’s industrial and manufacturing sectors have been cooling in recent years, and traders are viewing that as a sign that mineral demand will fall. The numbers from China feed into the narrative that global demand is cooling, as seen in the IEA update.

US

Sentiment on Wall Street is a little sour as traders are worried about the state of global trade, and the recent political uncertainty in the Middle East in relation to the oil tankers, is a factor too. All the chatter of looser monetary policy from the Federal Reserve has encouraged dealers to view negative economic data as further justification for rate cuts later this year, but the updates from the US were largely positive.

Retail sales in May jumped by 0.5%, and the -0.2% reading for April was revised to 0.3%. The report that strips out auto sales, showed 0.5% growth in May, and the previous reading was revised higher to 0.5% from 0.1%. Industrial production in May was 0.4%, which topped the 0.2% consensus estimate. The University of Michigan consumer sentiment survey slipped to 97.8 in June, from 100 in May. The fact that retail sales are firm, suggests that consumers are willing to spend money, and that should stand to the economy.

Broadcom shares are in the red in light of the disappointing second-quarter update yesterday. Revenue for the period was $5.52 billion which undershot the $5.68 billion forecast. The group has taken knock on account of the Huawei ban, and the group lowered its guidance. On an annual basis, the firm now expects revenue to be $22.6 billion, while equity analysts were predicting $24.31 billion.  Qualcomm, Intel and Western Digital shares are in the red too.        

FX

The broadly positive US economic indicators pushed the US dollar index higher. Recently there has been a lot of chatter that the Federal Reserve will lower rates, and in light of the retail sales and the industrial production numbers, dealers are snapping up the relatively cheap US dollar.

EUR/USD has been hit by the firmer greenback, and the inflation reports from France and Italy didn’t help the euro’s case. French CPI slipped back to 0.9% from 1.1% and Italian CPI held steady at 0.9%, and both announcements point to subdued demand, which echoes the IEA’s report.

GBP/USD has been dented by the drive higher in the US dollar. It was a quiet day in terms of UK economic news. In the near-term, the Conservative Party leaders race will be in focus, and for now, pro-Brexit Boris Johnson is in the lead. 

Commodities

Gold’s move to the upside has been fuelled by the flight-to-quality effect. Some traders are cashing in their equity positions and ploughing their funds into assets like gold, as it is perceived to be lower risk. The metal’s rally to a level not seen since April 2018 is all the more impressive given the dollar’s jump.

WTI and Brent crude are a little higher today in the wake of the volatility seen in the energy market this week. On one hand, traders are concerned about supply and logistics in the Gulf of Oman, but on the other hand, the IEA’s warning that demand could drop, is counteracting the supply worries.    

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