The lack of any dip in the Japanese yen or gold suggests that, despite yesterday’s rebound, investors are yet to be convinced that the down move in equity markets of the last week or so is over.

The fall in US and German bond yields, as well as some initial weakness early on in European equity trading today also bears out this line of thinking, with the underperformance in basic resource stocks and the Australian dollar reinforcing concerns about the health of the Chinese economy.

Europe

We have seen a bit of a pullback this afternoon but that is entirely down to reports that President Trump has decided to delay the imposition of tariffs on auto imports by six months, in the process prompting a surge in German auto makers, as well as a rebound in the FTSE 100 and DAX as we move into the close.

This may be a case of delaying the inevitable, but given that the US is already at odds with China and Iran, the reasoning appears to be not to be fighting too many battles at once.

Judging by this morning’s monumentally disappointing April retail sales and industrial production data out of China, it would appear that the rebound seen in March could well have been one borne out of post Chinese New Year catch up. What is more concerning is that the April slowdown has come about before the increase in US tariffs has even taken effect.

While it is not unreasonable to surmise that we will get to see further easing from Chinese authorities it remains by no means certain that they will generate the type of recovery that is required to help underpin global growth prospects.

Amongst the biggest decliners B&Q owner Kingfisher disappointed againreporting Q1 numbers that missed estimates. The B&Q business saw total sales rise 2.8%, while Screwfix has once again been the silver lining with like for like sales rising 4.5%. Once again the French business has been the proverbial ball and chain on the company’s performance, with like-for-like sales down 3.7%, helping drag the shares to one-month lows.

On the plus side Compass Group beat expectations, helped by new business in North America and new UK defence contracts. Revenues increased by 6.6% while H1 profits rose by nearly 6%, to £951m. As outsourcers go Compass appears to be the exception to the rule, with its prospects looking positive for the second half of the year.

Travel firm TUI Travel, has also seen its shares rise after its latest first-half numbers showed that the company lost €341.3m, with most of that loss coming in Q2, to the tune of €202m. Revenues came in at €6.76bn, a rise of 1.7% from a year ago. The company also warned on the prospect of a further profit hit on the back the grounding of its Boeing 737 MAX planes, with no expectation as to when the aircraft would be ready to fly again. Management were able to reiterate full-year guidance, but it was caveated on that basis.

Bookings for the summer were down 3%, however there is hope that Q3 will see an improvement, given the late timing of Easter, while the delay to Brexit until October may also unlock some demand on both sides of the Channel, which might suggest a rebound in the coming quarter. TUI had better hope so because its Boeing problems aren’t likely to go away anytime soon.

ITV shares have also continued to slide, now down more than 5% since the Jeremy Kyle show was suspended on Monday. Whether that’s a coincidence remains to be seen but it’s hard to believe that the cancellation of what is a toxic show is the sole reason behind this fall. It’s more likely that the reality TV show format may well be nearing the end of the road and this may be the arbiter of a fundamental rethink of the entire format, with consequences for other shows like Love Island.

US

US markets have been unable to sustain the momentum of yesterday’s modest rebound, opening lower, in the wake of today’s softer tone to European trading, and a big miss on US April retail sales, which came in at -0.2%, missing expectations of 0.2%.

Investors appeared to pass off comments from Treasury Secretary Steve Mnuchin that the US and China were serious in coming to an agreement doesn’t appear to be inspiring any confidence in a market that is now looking past the chatter. The market did react to reports that the US President was looking at delaying the imposition of auto tariffs on car imports for 6 months, which did prompt a rebound off the lows, with the Nasdaq leading the rebound, and the Dow lagging.

The weak US retail sales numbers have seen stocks like Abercrombie, Nordstrom and Kohl’s all slip back, with Macy’s outperforming after it managed to beat expectations on its latest quarterly numbers. 

FX

The Australian dollar has been among the worst performers today after this morning’s disappointing Chinese economic data, posting its lowest levels this year, after breaking below 0.6960 support and opening up the prospect of further losses towards the flash crash lows that we saw at the end of December, down near 0.6740. A weakening Chinese economy, as well as concerns about the Australian economy is likely to prompt the RBA to cut rates at its next meeting in June, once this weekend’s Federal elections are out of the way.

The pound has continued to drift lower on the news that the BrexitWithdrawal Agreement Bill will be presented back to MPs to vote on again on 3 June, with little possibility that it will be any more successful in passing than it was on the previous three occasions. Against the US dollar it has broken through its April lows of 1.2865, to hit its lowest level since February when it went as low as 1.2785.

The prime minister’s calculation appears to be that a poor showing by both main parties in the European elections next week will frighten MPs into voting for it. This seems highly unlikely, as it is more likely that it would merely reinforce already entrenched positions.

Commodities

Crude oil prices have slipped back a touch today after the IEA cut its estimates for oil demand in 2019. Any downside is likely to be inhibited by geopolitical concerns, as the US builds up its military presence in the Arabian Gulf region. US inventories posted a surprise rise to 5.43m barrels, against an expectation of a draw of 1.2m barrels.

Gold continues to remain fairly well supported near its recent peaks with the risk that a sustained move above the $1,300 level, could well see further gains, if the current tensions, between the US and China and US and Iran don’t show any signs of cooling off.

 

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.