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Daily Markets Update, 1 August

 

 

  • Strong earnings and higher commodities : Global Shares Advance.
  • Europe tracks Asia on Earnings and promising economic data.
  • Dow Set To Open Above 22,000
  •  Dollar edged up slightly from 14-month lows EURUSD at $ 1.1818.

 

Equity markets gained on strong corporate earnings  and higher commodity prices.

Asian equities traded higher across the board after China’s Caixin Manufacturing PMI beat expectations and printed its highest since March.

World stocks are on their longest streak of monthly gains in more than a decade, with the MSCI All-Country index rising again on Tuesday, up 0.3% as global economy is perceived as on a strong recovery path.

The chaos perceived in the White House does not help the dollar to be ditched by investors in the short term, pushing the greenback lower overnight and sending it down for the fifth consecutive month.

“I think the short dollar trade is still the broad consensus trade in the financial markets,,” said Esther Maria Reichelt, an FX analyst at Commerzbank in Frankfurt. “But we are approaching important levels against other currencies, such as 1.20 on the euro, which may prompt some concerns from other central banks.”

 

Eurozone Economy Speeds Up, the ball is now with Draghi

Eurozone economic growth gathered pace in the three months to June, making it more likely the European Central Bank will decide in 2017 to remove some of its growth-boosting stimulus measures.

Eurozone

Gross domestic product in the 19-country region rose 0.6 percent in the three months through June, after increasing 0.5 percent at the start of the year. That’s in line with the median estimate in a Bloomberg survey of economists.

Core inflation will be on focus whether it picks up and how fast.

Figures from economic confidence to joblessness and manufacturing output have signaled the economy was gaining steam, underpinning expectations by the European Central Bank that price pressures would eventually begin to build. Policy makers are preparing for a debate in the autumn about the future path of quantitative easing, which has helped reduce financing costs for firms and households, thus stimulating demand, Bloomberg reports.

The impact of stronger Euro is likely to impact  on sectors more at risk.

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The end of the earnings recession in the eurozone has been a big theme for 2017. Investors seeking exposure to it should also watch euro’s long rally.

Analysis from Morgan Stanley concludes that there is a “sizeable impact” from a strong euro “already built in”. It calculates that eurozone GDP growth will be reduced by around 0.1 percentage point in 2017, and 0.6pp in 2018.

“We estimate that a 10 per cent Euro appreciation tends to lower growth by around 0.7pp one year after,” says Matthew Garman, equity strategist.

Proprietary data on the geographical and cost exposure of eurozone companies analysed by the US bank finds that euro strength most favours banks, retailers and utilities. It poses the biggest threat to materials companies, food, beverage and tobacco stocks and semiconductor makers, says the FT.

 

The correlation between stocks and Treasury yields is now the lowest in about a decade. It means that Treasury securities are not as effective in hedging against declines in the stock market.

Stocks News

BP +4% premarket as higher oil prices and deeper cost cuts propelled the oil giant to a second quarter profit beat. The company reported a 10% rise in production, though it took a big charge related to failed exploration in Angola. BP also expects relief in H2 from a boost in divestment proceeds and a decline in payments related to its Gulf of Mexico spill.

Earnings out of Japan: Sony (NYSE:SNE+2.3% premarket as Q1 net profit surged from the same period a year ago, buoyed by strong sales of smartphone sensor components and PlayStation 4 consoles. Solid motorcycle revenues and weakness in the yen provided Honda’s (NYSE:HMC) earnings with a boost in the first quarter, prompting the vehicle maker to lift its full-year forecasts.

Bitcoin will likely split into two separate currencies today due to a dispute between core developers, who want to keep network blocks limited to protect against hacks, and miners, who want to increase their size to make the network faster. “This is somewhat like a stock split,” said Jeff Garzik, CEO of Bloq. “You go to sleep with 100 bitcoins and wake up in the morning with 100 bitcoins plus 100 ‘Bitcoin Cash’, a new token.”

The Serious Fraud Office has opened a formal probe into British American Tobacco (NYSEMKT:BTI) over “allegations of misconduct,” while the cigarette maker said it “intends to cooperate with that investigation.” In February last year, BAT announced it had hired lawyers to examine allegations that it bribed officials in east Africa to undermine anti-smoking laws.

Jurors in the Martin Shkreli fraud trial ended their first day of deliberations Monday without reaching a verdict. The “Pharma Bro” is charged with defrauding investors in two hedge funds he ran, as well as a drug company he founded, Retrophin (NASDAQ:RTRX). He faces up to 20 years in prison if convicted.

Wisconsin Governor Scott Walker has ordered the state’s legislature into special session today to consider an incentive package that would award Foxconn (OTC:FXCOF) $3B over 15 years and waive several state environmental reviews. The firm said last week it plans to build a $10B LCD factory in the state, but the deal has drawn some criticism from those calling it a corporate giveaway.

Spotify’s growth in paid users is still accelerating, outpacing deep-pocketed rival Apple (AAPL) along the way. The company hit 60M paid subscriptions vs. Apple Music’s 27M as of the end of June. Spotify (Private:MUSIC) also attracted 20M of those in less than a year; it took Apple longer than a year and a half to add similar numbers.

The ride-hailing wars continue… Didi Chuxing (Private:DIDI) has teamed up with UBERrival Taxify to grow its network across Europe, Africa and Asia, underscoring its tightening grip on the global transport market. Last year, Didi bought Uber’s Chinese business and, at the start of this year, invested $100M in its U.S. rival LYFT.

PSA Group has completed its takeover of the Opel and Vauxhall brands from General Motors (NYSE:GM), helping it become Europe’s second-largest carmaker by sales. “We are witnessing the birth of a true European champion today,” PSA (OTCPK:PEUGF) Chairman Carlos Tavares said in a statement. It highlights GM’s steady retreat from Europe, a region where it has not been profitable since 1999

Monday’s Key Earnings

Pandora (NYSE:P-1.2% AH narrowing its revenue expectations.
Sanofi (NYSE:SNY-0.4% hit by restructuring costs.

Today’s Markets 

In Asia, Japan +0.3%. Hong Kong +0.8%. China +0.6%. India +0.2%.
In Europe, at midday, London +0.6%. Paris +0.5%. Frankfurt +0.5%.
Futures at 6:20, Dow +0.5%. S&P +0.3%. Nasdaq +0.4%. Crude -0.1% to $50.13. Gold -0.1% to $1272.10.
Ten-year Treasury Yield flat at 2.3%

Economy

Latest ousting in the West Wing… Anthony Scaramucci has become the shortest-serving communications director in White House history. Press Secretary Sean Spicer resigned last month, while former Marine general John Kelly replaced Reince Priebus as chief of staff yesterday. Investors did not seem to mind the shakeup too much, the Dow Jones industrial average closing at a record high.

The White House expects tax reform legislation to move quickly through Congress this fall, advancing through the House in October and clearing the Senate in November. “So that, I think, is an aggressive schedule, but that is our timetable,” legislative director Marc Short said, later adding, “I think we’re in for a long fall, legislative calendar-wise.”

Mexico has named Kenneth Smith as its chief negotiator for talks set to begin next month aimed at revamping NAFTA. He’s a veteran Mexican trade policy expert and currently serves as director of the Trade and NAFTA Office at the Mexican embassy in Washington. Smith’s U.S. counterpart will be John Melle, the assistant U.S. Trade Representative for the Western Hemisphere.

The eurozone economy gathered pace in the three months to June, making it more likely the ECB will decide later in 2017 to remove some of its stimulus measures. GDP growth expanded 0.6% on quarter after increasing 0.5% in Q1, marking 17 consecutive quarters of growth. Unemployment also dropped to a nine-year low of 9.1%.

Downing Street has quashed suggestions that EU citizens will still be able to come to Britain to live and work after Brexit takes effect in March 2019. Theresa May’s office was forced to clarify its position on “free movement” after senior cabinet officials appeared to take contradictory lines on the issue.

Despite concerns about cooling growth in the world’s second-largest economy, China’s Caixin manufacturing PMI came in at a four-month high of 51.1 in July, up from June’s 50.4. Separately, China lashed out at the U.S. over North Korea, saying Washington was ratcheting up tensions with Pyongyang and violating U.N. Security Council resolutions through its plan to impose unilateral sanctions.

Qatar has lodged a formal complaint with the World Trade Organization against the “illegal siege” imposed by four Arab neighbors that have accused the Gulf state of sponsoring terrorism. By formally “requesting consultations,” Qatar triggered a 60-day deadline for the countries to settle the complaint, or face litigation at the WTO and potential trade penalties.

Former petroleum minister Shahid Khaqan Abbasi is poised to become Pakistan’s new prime minister in a parliamentary vote today, just days after the ouster of veteran leader Nawaz Sharif. A quick transition should ease fears that the nation would be plunged into another bout of political instability, which could erode economic and security gains since the last poll in 2013.

The U.S. has imposed sanctions against Venezuela’s President Maduro, stating his government abused human rights and organized an illegitimate vote designed to advance an authoritarian regime. When asked about oil sanctions against Venezuela, Treasury Secretary Steven Mnuchin said the U.S. would consider all options, keeping the possibility of trade flow disruptions alive.

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