Summary
Markets remain edgy after technology shares remain unloved in the wake of disappointing updates last week from Facebook and Twitter.
Investors are also cautious ahead of a raft of central bank meetings this week, including the Bank of Japan, the US Federal Reserve and the Bank of England.
The FTSE 100 is virtually flat while Germany’s Dax is down 0.29% and France’s Cac has slipped 0.18%. On Wall Street the Dow Jones Industrial Average is up 0.12% while the technology heavy Nasdaq index is down 0.49%.
On the economics front, confidence across the European Union held up this month with the European Commission figures showing a pick-up in sentiment in the UK.
Still with the UK, mortgage approvals hit a five month high while in Germany, inflation was steady in July.
On that note, it’s time to close for the day. Thanks for your comments, and we’ll be back tomorrow.
Wall Street mixed at open
Better than expected second quarter earnings from industrial giant Caterpillar have given some support to struggling US markets.
The heavy equipment maker raised its outlook for the full year, easing fears that the continuing trade dispute between the US and China would badly damage corporate profits.
The Dow Jones Industrial Average has edged up 13 points or 0.07% in early trading while the S&P 500 is up 0.01%.
But last week’s tech sell-off continues to undermine the Nasdaq Composite, which has dipped 0.27%.
German inflation steady
Germany’s inflation rate remained steady in July, above the European Central Bank’s target of 2%.
Consumer prices rose 2.1% year on year, the same as the previous month, according to the Federal Statistics Office. That was the figure harmonised with the rest of the European Union - without that it was within the 2% target and down from 2.1% the previous month.
Economist Carsten Brzeski at ING Bank said the figures provided little evidence of a sustainable increase in underlying inflation:
Based on the results of seven regional states, German headline inflation recorded another marginal drop and slowed down to 2.0% year on year in July, from 2.1.% YoY in June and 2.2% YoY in May. Measured by the harmonized European consumer price index, headline inflation remained unchanged at 2.1%, suggesting that headline inflation in the entire Eurozone (to be released tomorrow) could have hit the 2%-mark for the fourth time in the last five years.
Returning to Germany, headline inflation at around 2% YoY, however, is still less the result of the ECB’s ultra-loose monetary policy but rather the result of higher energy prices. In fact, where available, regional core inflation measures remained broadly unchanged and only slightly above 1%, indicating that underlying inflationary pressures in the German economy remain low. Judging from the available components, German inflation data still tells a two-sided story: while prices for consumer goods have gradually accelerated in recent months, inflation on services has slowed down and has even been negative for a couple of months for communication. Also, whether it was the World Cup effect or just the ordinary sales season is hard to tell, but prices for clothing and shoes were the biggest drag on headline inflation.
Looking ahead, there are still little signs supporting the ECB’s general optimism that underlying inflation in the entire Eurozone is picking up. Despite a very long economic cycle, low unemployment and rising wages, the German economy shows little sign of overheating, not even a significant pick-up in underlying inflation. Instead, headline inflation is mainly dominated by external and one-off factors. In this regard, the current heatwave could push up food prices and hence headline inflation in the coming months. But with little upside pressure on underlying inflation, chances that headline inflation will fall back under 2% towards the end of the year are much higher than staying at, or closely above, the 2%-mark.
Oil prices are moving higher, helped by last week’s strong growth figures from the US.
The prospects of sanctions on Iran denting supply is also supporting the market, although the continuing trade tensions between the US and China are a dampening influence.
Brent crude is currently up 0.75% at $74.85 a barrel while West Texas Intermediate - the US benchmark - is 1.76% better at $69.9.
Here’s the Press Association on the UK lending figures:
The number of mortgage approvals made to home-buyers jumped to a five-month high in June, Bank of England figures show.
Some 65,619 mortgages got the green light for house purchase - the highest monthly total since January.
Re-mortgage approvals fell by 7.3% month on month, with 47,895 loans approved in June. Despite the drop-off, the Bank said “re-mortgaging approvals remain broadly in line with the average over 2018 so far”...
The Bank of England’s Money and Credit report also said that, excluding mortgages, households’ annual growth in borrowing “remained stable” at 8.8% in June.
It said: “Credit cards have been accounting for an increasing share of consumer credit growth over the past couple of years and the growth rate of credit card lending has exceeded that of other loans and advances (which includes personal loans, overdrafts and car finance) since January 2018.”
Annual credit card growth stood at 9.5% in June, compared with 8.5% annual growth in other loans and advances.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the continued strength in non-mortgage borrowing “is symptomatic of the pressure on consumers’ finances, rather than rising confidence about the outlook for their incomes”.
The recent volatility in tech shares could herald a tricky summer for markets, says David Cheetham, chief market analyst at online trading platform XTB:
The summer months are often seen as doldrums as far as the markets are concerned with the perception dating back several centuries and characterised succinctly with the “sell-in-May” trading adage.
However, there have been some large moves in recent years and there are growing signs that we could be set for another turbulent August as we saw in 2011 and 2015. The root causes of those plunges were the Eurozone debt crisis and fears of a Chinese slowdown, and while the latter of the two could in particular resurface in the not too distant future the early signs this time around, should another plunge occur, seem to be in US tech stocks.
Last week’s stunning drop in Facebook caught many off guard and serves as a timely reminder that the latest leg higher in US markets has come on a narrowing breadth and increasingly ambitious price multiples. There remains much to occur before we even get anywhere near the panic seen in previous August’s but there are a growing set of circumstance arising which may spark a period of heightened volatility.
Speaking of the Bank of England rate-setting meeting on Thursday, Stefan Koopman, market economist at Rabobank, says:
This meeting is Mark Carney’s leap of faith. He has led the markets to expect a rate rise, so he now has little choice but to follow through or risk losing credibility.
The good news is that after disappointing economic data earlier in the year, we expect to see 0.4% GDP growth this quarter. With there being evidence to show that the Q1 dip was weather-related rather than a structural, the Bank appears to have the platform to push through a hike.
The only plausible reason we could see behind interest rates remaining flat would be the ongoing uncertainty around Brexit. But if rates do stay at 0.5% this time, we wouldn’t expect another rise until there’s more clarity around the UK’s departure from the European Union.
The pound is having an uncertain time as investors try to decide whether or not an interest rate rise is coming this week.
Against the dollar it has edged up 0.15% to $1.3122 while against the euro it is down 0.18% at €1.1226.
Sterling is of course being influenced not only by the prospect of a rate rise but the continuing Brexit discussions and the progress (or lack of it) being made by the government.
Ahead of the latest eurozone GDP figures due on Tuesday, ING economist Bert Colijn said:
We don’t expect tomorrow’s GDP data for Q2 to have improved from the disappointing Q1 and it does not look like Q3 has started on a stronger footing. Economic sentiment decreased slightly in July, adding to the view that the current pace of 0.4% GDP growth QoQ is more or less the cruising speed for 2018. The PMI and ESI sent differing signals about the performance of industry and services. The PMI saw a decline in the services index, while the ESI saw improvements and while the PMI indicated stable manufacturing conditions, the ESI industry indicator dropped. Overall, the picture was less positive from a business perspective for both surveys, while the ESI indicated stable consumer confidence.
While disappointment with current economic conditions seems to be par for the course at the moment, growth concerns seem to be overstating the current situation somewhat. The outlook for domestic demand remains quite bright with continued employment recovery and some improvements in wage growth. The outlook for the external environment remains uncertain thanks to trade war concerns, although recent developments have been more positive. Even though a trade war has far from been avoided, last week’s meeting between US President Trump and European Commission President Juncker at least cleared the air for the moment and could be positive for Eurozone sentiment. The Eurozone economy has shifted into a lower gear for now, but the expansion does not seem to be at risk.
Business confidence across Europe remained fairly stable in July with a particularly strong performance from the UK, according to the latest figures.
The EC’s economic sentiment indicator for the eurozone was down just 0.2 points at 112.1 while for the wider European Union it edged up 0.1 points to 112.3. The commission said:
Broadly unchanged euro-area sentiment resulted from decreases in industry and retail trade confidence, which were offset by an increase in the services sector. Confidence in construction remained broadly stable while it stayed unchanged among consumers.
The marginally better outcome of the headline indicator for the EU (+0.1) was mainly due to the marked improvement of sentiment in the largest non-euro area EU economy, the UK (+1.6)
Welcome news as #European Commission survey shows #UK #economic sentiment index up to 5-month high of 108.5 in July from 106.9 in June & low of 105.3 in March. #Consumer confidence up & increases for #industrial & #services sectors' sentiment. But down for #retail & #construction
— Howard Archer (@HowardArcherUK) July 30, 2018
Updated
More on the UK borrowing figures:
UK unsecured credit continues to soar and rose at an annual rate of 8.8% in June
— Shaun Richards (@notayesmansecon) July 30, 2018
UK mortgage approvals hit five month high
Signs of life in the UK housing market, as mortgage approvals picked up last month.
Bank of England figures showed approvals rising from 64,684 in May to 65,619, slightly better than expected and hitting a five month high. Net mortgage lending rose by £3.851bn while consumer lending increased by £1.567bn.
Updated
Some bad news from Heineken, the world’s second-largest beer maker. Reuters reports:
[The company] cut its full-year margin forecasts due to currency weakness in some more profitable markets and expansion in Brazil, knocking its shares on Monday.
The brewer of Heineken lager, Tiger, Sol and Strongbow cider reported first-half earnings below market expectations and said its operating margin would decline by 20 basis points in 2018, compared with a previous forecast of a 25 basis point increase, after it fell sharply in the first six months.
Overall, the brewer sold more beer in the first six months of 2018 than expected, with growth rose steepest in its two most profitable markets, Vietnam and Mexico, along with Brazil, Cambodia, South Africa, Ethiopia and Russia.
Heineken shares traded down 6.0 percent at 86.84 euros, by far the weakest performers in the FTSEurofirst index of leading European shares.
The Dutch brewer, whose Heineken lager is the top seller in Europe, said the new guidance was because of the negative translational hit from currencies concentrated more in its higher margin countries, such as Vietnam, and a larger dilutive effect of its expanding Brazilian business.
Heineken acquired the loss-making Brazilian operations of Japan’s Kirin in 2017 to become the number two player in the South America country, and had previously warned of an impact on its margins.
The latest Twitter comments from the US president have moved away from trade disputes for the moments, which may give some relief to investors, says Paul Donovan, chief economist at UBS Global Wealth Management:
US President Trump has been active on Twitter. Most of the tweets are about media and the Mueller investigation, and do not matter to markets. However, there was also a threat of shutting down the US government if US President Trump’s “big, beautiful wall” is not approved by Congress. There is a 30 September budget deadline.
Markets may be somewhat relieved that the political focus of the Trump Twitter Feed has shifted from trade to immigration. Both matter as long-term economic topics, but trade is a bigger threat to investors in the near term.
The downbeat mood continues although it is by no means a rout. Connor Campbell, financial analyst at Spreadex, said:
The markets got off to a negative start on what is going to be a crazy busy week, with investors caught between last Friday’s US tech-sell-off and the Fed and Bank of England meetings on Wednesday and Thursday respectively.
The FTSE – which is not only facing the much-awaited BoE decision, but the latest PMIs AND updates from nearly a fifth of its constituents – fell 0.4% after the bell. That dragged the index back under 7700, a level it has struggled to substantially break beyond for most of July. Once again its commodity stocks proved to be an issue, especially its miners, led lower by a 1% drop from copper.
While the FTSE struggled, the pound – for which Thursday’s BoE interest rate decision could be a make or break event – was fairly serene. Against both the dollar and the euro sterling rose around 0.1%, hitting $1.312 against the former and €1.125 against the latter.
As for the Eurozone indices, there were in a similar mood to their UK counterpart. The DAX dipped 35 points, taking it back under 12850, with the CAC slipping 20 points to slip below 5500. In comparison to the UK and US the region doesn’t have a huge amount going on this week, meaning its trading could be driven by the euro’s relationship to the dollar and pound.
GVC, the owner of bookmakers Ladbrokes and Coral, is topping the FTSE 100 risers after confirming a $200m deal with MGM Resorts, the world’s biggest casino operator.
GVC is currently up more than 5%. Our full story on the deal is here:
European markets open lower
As expected, European markets have begun the week on a downbeat note, following the tech sell-off on Wall Street on Friady.
The FTSE 100 has fallen 25 points or 0.33%, Germany’s Dax is down 0.27%, France’s Cac has lost 0.4% and Italy’s FTSE MIB is 0.42% lower.
Foxtons falls into losses
On the results front, London focused estate agency Foxtons has slumped into loss as the capital’s property market continues to struggle.
It lost £2.5m in the first half compared to a £3.8m profit this time last year, and said the outlook was mixed with a subdued sales market. Neil Wilson, chief market analyst at Markets.com, said:
Sales are the real problem as the exodus of buyers in the wake of the Brexit vote continues, while higher stamp duty is biting. Sales revenues fell 23% to £17.2m. Chief executive Nic Budden finds comfort in London’s ‘strong fundamentals as a global hub’. So he won’t be pleased to see Deutsche Bank moving half of its euro clearing out of the capital to Germany.
Deutsche is reported by the Financial Times to be moving almost half its euro clearing activities from London to Frankfurt (£).
Agenda: Markets look ahead to interest rate decision
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets are expected to open lower after a tech sell-off on Wall Street at the end of last week. Investors are beginning to wonder if the relentless rise of the FAANG companies - Facebook, Amazon, Apple, Netflix and Google (now owned by Alphabet) - could be over.
More likely is that there will be increasing divergence between them. Amazon reported stellar results once more and Alphabet easily shook off the effects of a European Commission fine, but Facebook recorded the biggest ever one day loss in value on Thursday after its outlook statement unnerved the market. This followed disappointing results from Netflix a few days earlier.
Meanwhile Twitter’s user numbers saw a 1m fall and its shares plummeted 20% on Friday. So the tech heavy Nasdaq Compositie index lost nearly 1.5% on Friday, which has already fed through into declines in Asian markets. Europe, which on the whole put in a reasonable performance last week after Donald Trump and EC president Jean-Claude Juncker eased trade war fears after a better than expected meeting, is also on course for early losses.
European Opening Calls:#FTSE 7658 -0.57%#DAX 12794 -0.52%#CAC 5483 -0.52%#MIB 21806 -0.68%#IBEX 9795 -0.74%
— IGSquawk (@IGSquawk) July 30, 2018
The falls in the US came despite news that the country’s economy had grown by 4.1% on an annualised basis. Jasper Lawler, head of research at London Capital Group, said:
The US session at the end of last week left traders digesting 4.1% yoy economic growth in the US in addition to another round of tech stocks reporting. After Facebook’s disappointing update and record breaking sell off, Twitter quickly followed suit. A beat in revenue but a drop off in user activity sent the stock plunging 12% on fears that the platform’s user growth could be limited.
Earnings season had set off to a good start, however tech stock headlines have quickly dominated, transforming perceptions and raising questions over valuations of FAANG stocks. With Netflix, Facebook and now Twitter disappointing with results, investors are seriously questioning these advertising revenues based or subscription-based models. On the other hand, Amazon beat earnings expectations comfortably, whilst Alphabet shrugged off a €5 billion fine. This original FAANG trade, which petty much guaranteed impressive returns across previous years, suddenly looks a lot more complicated. Whilst prior to the year these stocks could do no wrong, suddenly that is no longer the case.
Investors will now be looking ahead to Apple’s results on Tuesday, with the iPhone maker expected to be closer to the Amazon end of the scale than Facebook,
This week also sees a number of central bank meetings. The Bank of England is expected to sanction an interest rate rise on Thursday, but the US Federal Reserve is likely to hold fire a day earlier, albeit it could well give further hints at a September increase. Michael Hewson, chief market analyst at CMC Markets UK, said:
It’s the turn of the Bank of Japan, US Federal Reserve and the Bank of England to guide on monetary policy, and while no surprises are expected from the FOMC, we could get some policy tweaks from the Bank of Japan after last week’s interventions in the JGB market. We could also get a rate rise from the Bank of England on Thursday when they meet to run the rule over the UK economy and the latest inflation report.
Back to today, and there are a few economic numbers to look out for.
Agenda:
9.30 BST UK mortgage approvals and net lending
10.00 BST Eurozone consumer confidence
13.00 BST German consumer price index
Updated
