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China weighs on miners, Turkey weighs on banks

Stock markets got off to a positive start but drifted lower throughout the session, and are now firmly in the red. 


The uncertainty surrounding Turkey is still hanging over equity markets. Tensions between Turkey and the US have risen in light of President Erdogan’s declaration that the country will boycott US electrical goods. Firms like Apple won’t be too worried about this announcement, but it sends out the message that sour relations are here to stay. Given the potential exposure that eurozone banks have to the country, investors will remain cautious. 

Mining stocks are in the red after China revealed disappointing economic indicators overnight. Beijing confirmed that fixed asset investment grew by 5.5% - a record low. Industrial output held steady at 6% in July, but economists were expecting an increase of 6.3%. Retail sales rose by 8.8%, which was below the 9.1% forecast, and it was a slower rate compared with the 9% growth in June. The updates suggest that the Chinese economy is continuing to soften, and this prompted traders to dump mining stocks like Glencore, BHP Billiton and Rio Tinto.  

Antofagasta shares are in the red after the company revealed a 3.6% rise in first-half revenue and a 33.1% fall in profit. Higher costs were cited for the drop in earnings, but the firm anticipates production and costs to improve in the second-half. Antofagasta maintained its full-year guidance, but warned that global trade tensions was creating ‘ considerable market uncertainty’. The stock hit its highest level since January 2013 in June, but has been drifting lower since then, and if the recent bearish move continues it could target 836p. 


Equity markets are registering small gains as stocks bounce back from yesterday. The US markets are holding up better than their European equivalents regarding the Turkish lira crisis. Mr Erdogan is keeping his tough stance against the US, so the ball is in Mr Trump’s court, and a decline in already strained tensions is likely. 

Home Depot shares are higher after the company released impressive second-quarter results. Earnings per share were $3.05, which comfortably topped the $2.84 forecast. Revenue was $30.46 billion while the consensus estimate was $30.03 billion. Same-store sales rose by 8%, and the market was anticipating a 6.6% jump. While it holds above the $190.00 level, its outlook might remain positive.

US import prices were flat in July, while the consensus estimate was 0.1%. The June report was revised from -0.4% to -0.1%. This could be seen as a sign that China’s tariffs are taking effect on the US. Protectionist policies often bring about higher prices and drive up the cost of living.       


EUR/USD is weaker today on account of the firmer US dollar. There were some respectable economic reports from the eurozone this morning, but they failed to prop up the single currency German inflation on a yearly basis held steady at 2%, in line with forecasts. French inflation also remained unchanged and met economists’ expectations. The eurozone grew by 0.4% in the second-quarter, and that was an improvement on the 0.3% growth in the first three months of the year. The currency pair remains in its downward trend, and if it losses further ground it could target 1.1250.

GBP/USD is broadly flat on the day. There was a jump in volatility when the UK released the latest unemployment and earnings figures, but despite the largely positive updates, the pound edged lower against the US dollar. The UK jobless rate fell to 4% - it’s lowest since early 1975. Monthly average earnings excluding bonuses rose by 2.7%, in line with expectations, and the May figure was revised higher to 2.8% from 2.7%. 


Gold has crept higher as short covering and bargain hunting has propped up the market. Yesterday, the metal dropped to its lowest level since early 2017. Gold has been in a firm downward trend since April and we have yet to see any signs of the bearish move coming to an end. If the negative move continues it could target $1,180, while rallies might run into resistance at $1,200. 

WTI and Brent crude oil have pushed higher in the wake of Saudi Arabia revealing that output cooled in July. According to OPEC, the country registered a 52,800 barrel per day decline from June. There were some contradictory reports about Saudi’s output in recent weeks, but for now dealers are focusing on the dip in production report. 

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