It’s been a negative start for markets in Europe today with little in the way of positive drivers helping to sustain the rebound that we saw on Friday in the wake of the July jobs report out of the US.
Europe
This week’s main focus appears to be on this week’s inflation numbers from the US, which could show that prices edged up in July, however it is the numbers out of China which could be more instructive if headline CPI follows the PPI numbers into deflation.
The day’s trading has been a mixed bag for the UK benchmark with basic resources acting as a drag on the wider market, along with weakness in the energy sector. The big caps of Glencore, Anglo American, BP and Shell are acting as the main drag on the UK benchmark.
The best performers have been in civil aerospace with further gains for Rolls-Royce after JPMorgan threw in the towel on its “sell” rating, raising it to “neutral” with a 235p price target, in the wake of last week’s positive earnings update. Today’s move by JPMorgan also means that Rolls-Royce no longer has a sell rating against it for the first time since 2006, raising the question as to whether it may be starting to become a crowded trade, given the shares are up 125% year to date.
Melrose Industries, which also has a civil aerospace division, is also higher on the more positive outlook for international travel.
US
After a late sell-off on Friday, US markets managed to open higher with the main focus this week on the latest inflation numbers for July due later this week, in the wake of what was a reasonably solid jobs report on Friday.
Apple’s share price saw a sharp fall on Friday in the wake of its earnings numbers on Thursday. The Friday falls took the shares below the $3trn market cap level, as well as the 50-day SMA in what could be an ominous sign for the S&P500 and the Nasdaq 100. The extent of Friday’s fall saw the shares fall to their lowest levels since 10th June, and close to 2-month lows. It also translated into the biggest weekly decline for Apple since November last year.
Nikola shares look set to rebound after their 26% decline on Friday, which came after the departure of its CEO, as well as a disappointing Q2 earnings report.
With the slowdown being seen in covid vaccine sales BioNTech shares slipped to their first loss since 2020, reporting losses of $0.79c a share, or €190.4m. Revenues slid sharply from €3.2bn last year to €167.7m. Despite the precipitous decline in revenue BioNTech said it was optimistic that it would achieve €5bn in covid vaccine revenue for the full year. With H1 revenues of €1.4bn that’s a big ask, but certainly achievable given that last year revenues were €17.2bn
On the earnings front we have the latest Q2 numbers after the bell from Beyond Meat, Palantir, and Paramount Global after the bell.
FX
It’s been a lacklustre session for currencies today with the US dollar rebounding in the wake of Friday’s losses, although the pound is managing to hold up well despite rising negativity surrounding the currency.
A number of factors are being brought to bear in terms of arguing for a reversal of the gains for sterling after a strong first half performance. The main argument is rising recession risk, along with some signs that the central bank may well be close to the end of its rate hiking cycle.
This reasoning on the latter point comes across as rather odd given that only a few weeks ago many were arguing that the pound would start to come under pressure if the Bank of England was forced to become more aggressive on further rate hikes, because of the enormous damage they would do to the UK economy.
Now it is becoming apparent that the MPC won’t have to be anywhere near as aggressive on the rate hike front, due to interest rate policy becoming more restrictive, this is being argued as being negative for the pound. This comes across as completely contradictory, given that fewer rate hikes are likely to be less negative for the UK economy, raising the question as to which argument is correct, because you can’t have it both ways.
We are certainly seeing some pockets of weakness in the latest economic data, house prices are slowing and unemployment is edging higher, while wage growth is above core inflation, however the UK is not unique in seeing these same trends, as they are also being played out in European data.
Commodities
Brent crude oil prices edged up to new 4-month highs earlier today, building briefly off the back of another weekly gain, the 6th in a row, although we have since slipped back sharply, against the backdrop of some modest profit taking. The pullback appears to be primarily on the back of a rebound in the US dollar which finished last week very much on the back foot, and is now seeing a modest rebound.
There have been signs of significant draws in the latest inventory numbers, which is coming against a backdrop of tighter supply after Saudi Arabia extended its production cuts into September. With Russia also starting to implement cuts of its own there is scope for oil prices to retest the April peaks, and possibly beyond to $90.
Gold prices have slipped back a touch on the back of a slightly firmer US dollar after finishing last week on the up, after hitting a two-week low, on the back of firmer longer term US treasury yields. Prices could remain under pressure this week if yields continue their recent resilience.
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