Europe

European markets have enjoyed a decent week, helped in no small part by Wednesday’s agreement between President’s Trump and Juncker not to ramp up the trade rhetoric any further. This afternoon’s US Q2 GDP number came in at 4.1%, in line with expectations, and the highest since 2014.

The de-escalation in trade tensions along with today’s decent US data has helped push the DAX to its highest levels in over a month, while the FTSE100 has headed back above 7,700 and looks on course to retest its recent range highs.

Reckitt Benckiser has enjoyed a welcome lift, taking the share price close to six month highs, with its recent acquisition of US baby formula maker Mead Johnson starting to pay off with baby food sales in China seeing a big jump in the recent quarter, prompting management to raises its full year guidance on an increase in sales growth at the upper end of its 2%-3% sales range. 

BT Group is also higher, hitting two month highs, after reporting Q1 numbers which came in better than expected. Revenues came in at £5.72bn, down from the £5.8bn in Q1, but above expectations of £5.7bn, while pre-tax profits rose to £816m. While these numbers are an improvement, and the company’s outlook was left unchanged, we still have no clues as to a succession plan for departing CEO Gavin Patterson.

BP shares initially slid back, before recovering after it announced it was buying BHP’s US shale assets for $10.5bn, ahead of next week’s trading update where there is some concern that it might fall short of expectations given this week’s disappointing update from sector peer Royal Dutch Shell. Any thoughts that BP might be looking to pay down its $40bn debt pile appear to have reduced on the back of this acquisition and while oil prices remain in their current sweet spot, one can’t help thinking that BP management are leaving it late to do so. This remains the company’s Achilles heel in the event of another downturn.

With UK banks set to start reporting next week, Spain’s fourth largest bank Banco Sabadell, and its UK subsidiary TSB has had a quarter to forget, its shares sliding to a one year low after reporting a €138.7m loss for the quarter. Investors had expected a profit of €63m, but after taking a charge of £175m in respect of fraud losses and customer compensation, in the wake of the botched IT migration which rocked the UK bank in April, it appears that the problems were a lot worse than expected.

US

US markets initially opened higher after US Q2 GDP came in at 4.1%, in line with expectations, while Q1 GDP was revised up to 2.2%

The rise was driven primarily by personal consumption which rose by 4%, well above expectations of 3%. These are undoubtedly strong numbers, however the lack of price inflation would appear to suggest that this pace of expansion is unlikely to be sustainable.

Nonetheless the numbers do keep the prospects of further tightening by the Fed on the table, without running the risk that the Fed might be forced to jam on the brakes over fears about rapidly rising prices. Core PCE saw prices fall back from Q1’s levels of 2.2%, coming in at 2%, a nice goldilocks scenario. 

The tech sector has remained in focus, with the Nasdaq underperforming, despite Amazon’s rebound on the open to a new record high, on the back of last night’s profit of $2.5bn. The sector continues to look a little heavy with both Intel and Twitter posting heavy falls.

Following on from Facebook’s plunge this week Twitter has followed suit despite posting earnings that beat on revenues as well as profits. Profits came in at $0.17c a share and revenues at $710.5m against an estimate of $697.3m, however the shares tanked on some Q3 guidance downgrades on its monthly user growth figures which were adjusted down to the mid-single digit millions, along with revenue estimates. 

Intel’s shares also declined after revenue in its data centre chip business fell short, raising concerns that the company might lose market share to AMD.

Exxon Mobil also reported its latest Q2 numbers, and these came in well below expectations of $1.26c a share, at $0.92c a share. This is a big miss and looks to have come about as a result of an increase in capital expenditure which came in at $6.63bn, well above the consensus of $5.13b. This may well have been a reaction to a drop in production output levels as these numbers came in below expectations with markets expecting output of 3.83m and the company only managing to produce 3.65m barrels.

FX

It’s been a fairly decent week for the US dollar however today’s good GDP numbers haven’t raised expectations that the Fed will be forced to accelerate its rate hiking cycle. A decline in core PCE from 2.2% to 2% is unlikely to exert further upward pressure on the US dollar with US bond yields slipping back in the wake of the numbers. This has seen the US dollar slip back from its intraday highs.

The pound has remained under pressure this week against the US dollar after EU chief negotiator Michel Barnier poured cold water on the UK Prime Minister Theresa May’s Chequers customs plan. This wasn’t a surprise and was widely expected, so it’s important not to read too much into it, given that the weakness has come about as a result of US dollar strength not sterling weakness, and the pound has recovered from its lows of the day. Against the euro the pound has had a good week, finishing higher ahead of next week’s Bank of England rate meeting where there is the distinct possibility the central bank may finally deliver on a long awaited rate rise at its Thursday meeting.

Commodities

After three weeks of declines oil prices have rebounded this week helped by a decline in inventories as well as rising tension in the Middle East. Reports of an attack on a Saudi tanker yesterday in the Red Sea by Houthi rebels, along with nervousness that the US may attack Iran has served to put a floor under prices this week. 

Bitcoin, having pushed back above $8,000 level earlier this week, and a two month high, has fallen back sharply after the Winkelvoss twins had their application for a Bitcoin ETF on the Chicago Board of Trade Exchange rejected by the SEC.

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