European markets boosted by Alphabet and China
European stock markets have closed higher tonight, swept up by Google’s strong performance and optimism over China.
Mining stocks led the rally in London, on hopes that Beijing’s new stimulus package will protect China’s economy from a crash.
BHP Billiton, Anglo American and Glencore all surged over 5% to the top of the Footsie leaderboard, as commodity prices were lifted.
Tech stocks also gained ground in Europe, as traders watched the Nasdaq hit today’s record high.
Here’s the closing prices:
- Britain’s FTSE 100: Up 53 points or 0.7% at 7709
- German DAX: Up 120 points or 1.1% at 12,689
- French CAC: Up 55 points or 1% at 5,434
Fiona Cincotta, senior market analyst at City Index, says China’s new stimulus package has calmed some anxiety over the trade dispute with America, boostings sentiment across the globe.
A package of tax cuts, research spending, special bonds, infrastructure spending and a pledge to use tax policy to stimulate growth shows that the authorities in China are concerned over the impact that the developing trade war will have on growth and are taking measures to counteract a weakening economy.
Traders are also hopeful about the Q2 earnings season, which is getting into full swing;
Earning season is off to a strong start, of the 21% of S&P firms that have reported, 80.6% has beaten expectations for Q2 earnings, whilst 74% have surpassed expectations on earnings. These are the fundamental figures which are going to keep the equity rally alive given they offer the perfect distraction to trade war headlines. Until those trade war headlines are reflected in the data, these strong fundamentals will keep the bulls in charge.
Over in New York, the Nasdaq remains at record levels. It’s up 45 points at 7412.
Alphabet is the second-top riser, up 4%, behind biotechnology company Biogen whcih also smashed profit forecasts today. PayPal (+2.1%) and Facebook (+1.3) are also among the top risers.
That’s probably all for today. Thanks for reading and commenting. GW
Newsflash from Lancashire: Shale gas firm Cuadrilla has been given the green light by government to start fracking at a well between Blackpool and Preston.
This is the first permit granted under the government’s new regulatory regime, and comes despite protests from local residents and anti-fracking campaigners.
Energy minister Claire Perry said shale gas was an important potential new energy source, and she was satisfied Cuadrilla had met the government’s conditions for granting a hydraulic fracturing permit.
“Our world class regulations will ensure that shale exploration will maintain robust environmental standards and meet the expectations of local communities.”
Some in the local community, though, fear that injecting liquid at high pressures into the rock to split it and release hydrocarbons could cause earthquakes and pollute the water supply.
The IMF’s cure for the global economy’s imbalances includes cutting pensions in countries who are borrowing too much.
On the other wide of the coin, it wants saver countries to keep older citizens in the jobs market for longer.
IMF warns against current account imbalances
Newsflash: The International Monetary Fund has warned that the global economy is being destabilised by current account imbalances.
In a new report, the IMF flags up that some countries are simply saving too much (such as Germany), while others are running persistent deficits (Britain and America). And over time, this is creating dangerous instability.
The Fun warns:
From a global perspective, excess surpluses have been especially large and persistent in a small group of countries, most prominently in Germany and China, and to a lesser extent, in Korea, Netherlands, Sweden and Singapore
Excess deficits remain mainly in the United States and the United Kingdom, some euro area debtor countries, and a few vulnerable emerging market and developing economies (e.g. Argentina, Turkey).
What are current account imbalances and why do they matter? Find out in the 2018 External Sector Report #ESR https://t.co/qtcS1Rl72t pic.twitter.com/0DJRrR8DfJ
— IMF (@IMFNews) July 24, 2018
Donald Trump would surely agree, having made ‘fair trade’ a key plank of his administration.
But the IMF aren’t endorsing the White House’s trade war. Instead, it warns that protectionist measures will back fire.
Chief economist Maurice Obstfeld says:
The persistence of global imbalances and mounting perceptions of an uneven playing field for trade are fueling protectionist sentiment. These impulses are misguided. An escalation of protectionist policies would mainly hurt domestic and global growth, without much of an effect on current account imbalances, as this year’s report also finds.
The Fund also warns that Trump’s tax cuts could make the things worse:
The fiscal easing currently underway in the United States is leading to a tightening in monetary conditions, a stronger US dollar, and a larger US current account deficit.
In the near term, these trends risk aggravating trade tensions, and the resulting faster tightening of global financing conditions, which could prove even more disruptive for emerging market economies, especially those with weak external positions
Most of the famous FAANG stocks are bursting ahead today.
Google/Alphabet is leading the way (+4%), followed by Facebook (+2%), Amazon (+1.7%) and Apple (+0.9%).
Investors are wagering that Alphabet’s strong results bode well for the current results season (Facebook reports tomorrow, followed by Amazon on Thursday and Apple early next week).
Netflix, which missed Wall Street forecasts last week, is lagging behind though.
Alphabet drives Nasdaq to record highs
Breaking: The Nasdaq stock index has hit a fresh record high at the start of trading in New York.
Tech giant Alphabet is driving the rally, up 4%, after smashing Wall Street forecasts last night.
This helped send the Nasdaq Composite Index up 70 points, or, 0.9%, to 7,912 in early trading.
New record high for #tech focused #NASDAQ as Google's numbers help send Alphabet stock surging to it's own record high pic.twitter.com/96eJRTWQgv
— Caroline Hyde (@CarolineHydeTV) July 24, 2018
Traders are cheered by the strong earnings from its Google operations (see opening post), which delivered earnings per share of $11.75, compared to forecasts of $9.59 per share.
The broader S&P 500 index has gained 0.75%, while the benchmark Dow Jones industrial average is 0.6% higher.
Investors in Europe are also putting their worries about trade wars behind them, pushing shares up in London, Frankfurt and Paris:
Traders are also cheering China’s new stimulus measures. Beijing’s plan to cut R&D taxes and spur local investment is bolstering optimism in the markets.
David Madden, market analyst at CMC Markets, says:
European stock markets are higher in the wake of Beijing’s plans to stimulate the economy.
The Chinese government unveiled plans to boost domestic demand in the face of heightened trade tensions. The second-largest economy in the world has been slowing down in recent years, and the tariffs imposed by the US are making matters worse. The proactive move by the Chinese authorities has lifted investor confidence around the global.
Updated
Bitcoin is also on a tear this morning, as cryptocurrencies rally sharply.
The Bitcoin price has jumped by 6% this morning to $8,175 on the Luxembourg Bitstamp exchange, extending its recent rally.
The digital currency has now surged by a third in the last 10 days, having fallen sharply from around $20,000 at the start of the year.
Lukman Otunuga, research analyst at FXTM, suggests that the Bitcoin bulls have been lured out of hibernation, and could push bitcoin towards $10,000
An inflow of positive news over the past few weeks regarding cryptocurrencies has revived investor appetite for Bitcoin and this can be reflected in the bullish price action. Goldman Sachs and BlackRock have expressed interest in the cryptocurrency markets while the Financial Services Board declared that they do not pose a threat to the global financial system.
With this renewed sense of optimism over cryptocurrencies attracting investors from all directions, further upside could be on the cards in the near term.
Alphabet shares are expected to jump around 4% when Wall Street trading begin in 45 minutes, after the tech giant beat revenue and earnings targets last night.
Alphabet could surge to an all-time high as Wall Street says the internet giant's big bets are "paying off." https://t.co/c8DBcPyLCM pic.twitter.com/cPqEEGU1NW
— CNBC (@CNBC) July 24, 2018
In the old days, world leaders would prepare for a visiting politician by getting the red carpet swept, and perhaps organising a banquet.
Times change, though (and not always for the better). So president Trump has limbered up for his meeting with EC president Jean-Claude Juncker tomorrow with another blast about trade.
Countries that have treated us unfairly on trade for years are all coming to Washington to negotiate. This should have taken place many years ago but,
— Donald J. Trump (@realDonaldTrump) July 24, 2018
as the saying goes, better late than never!
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that - and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
Tomorrow’s meeting between Juncker and Trump could be heated.
The EC would like to dial down the trade tensions with the US, which has already threatened to impose tariffs on European car imports. But Juncker may struggle to persuade his host that tariffs are counter-productive, and will hurt US consumers and cost jobs.
The two sides have already fired shots in the trade wars; America hit Europe with 25% tariffs on steel imports, prompting new levies on US goods such as jeans and orange juice.
But despite all the noise, the two sides actually have fairly low trade barriers.
As Chris Giles wrote in the Financial Times today:
Even though some trade is deterred by specific high tariffs on both sides of the Atlantic, the average weighted tariffs applied by the EU on US goods were 3 per cent in 2015, a little lower than the US equivalent of 3.3 per cent in the same year.
City economist Timothy Ash thinks the Turkish central bank blundered today by not hiking interest rates:
Turkey - hard for the CBRT to explain its decision not to hike today. June inflation rose over 300bps in YOY terms. They just undid any of the good work that Albayrak might have done over the past week in trying to rebuild the confidence of the market.
— Timothy Ash (@tashecon) July 24, 2018
Yikes! The Turkish lira is tumbling after the country’s central bank surprisingly left interest rates on hold.
The financial markets had widely expected a rate hike today, of at least one percentage point. Instead, the Turkish central bank left borrowing costs unchanged at 17.75%, despite concerns over high inflation and the weak currency.
The move dealt the lira another blow, wiping 3% off its value against the US dollar.
Lira takes a dive after Central Bank of Turkey keeps rate on hold, Markets had expected a 100bp hike pic.twitter.com/A6ioV5Zx4V
— Chris Whittall (@Chris_Whittall) July 24, 2018
The decision will fuel concerns that president Erdogan is undermining central bank independence, as he pushes for lower interest rates. He has just promoted his son-in-law to a top role overseeing the Turkish economy.
London cabbies 'to sue Uber for £1.25bn'
London’s taxi drivers have been pushing back against ride-hail app Uber for years, holding protests and demanding for tighter regulation.
But now, they are taking their fight to a higher level - considering suing Uber for more than a billion pounds of lost earnings.
Sky News’s Mark Kleinman has the details:
London’s army of black cab drivers are drawing up a stunning plot to sue Uber for more than £1bn weeks after the ride-hailing app won a 15-month extension to its licence to operate in the capital.
Sky News has learnt that the Licensed Taxi Drivers’ Association (LTDA), which has 11,000 members in London, has engaged the leading law firm Mishcon de Reya to explore the potential for a massive legal claim against Uber.
Sources said on Tuesday that if the case proceeded, the LTDA was expected to argue that all 25,000 black cab drivers in London had suffered lost earnings averaging around £10,000 for at least five years as a consequence of failings in the way Uber had operated.
At that level, the overall compensation bill could total £1.25bn.
Last September, Uber learned it was losing its licence after Transport for London concluded it wasn’t a “fit and proper’ operator. That forced the firm to tighten up its practices, including the reporting of criminal offences and carrying out background checks on drivers.
TfL then granted Uber a new probationary licence last month, after the firm passed several inspections.
Chinese shares jump as Beijing announces new stimulus
Back in the markets, and Chinese stocks have surged after Beijing announced new fiscal measures to stimulate its economy.
Overnight, China’s government rolled out a mixture of tax cuts and infrastructure spending to tackle the “uncertainty” hurting its economy.
The People’s Bank of China also acted, pumping $74bn into China’s banking system to prevent credit drying up.
Premier Li Keqiang said it was important to “preserve economic activity within a reasonable range”, as the cabinet agreed tax cuts for company research and development projects.
China’s government will also accelerate the issuance of new bonds to finance local government building projects, and promote privately funded transport, oil and gas, and telecommunications projects.
ANZ economists Raymond Yeung and Betty Wang said in a note.
“The government is sending a clear signal that it is preparing to defend growth, ... Premier Li may be concerned about the negative impact of deleveraging on growth,”
The move comes just days after China’s growth rate dipped. It follows rising trade tensions with America, and Donald Trump’s threat to impose tariffs on all Chinese imports.
After months of losses, investors hailed the news. Shares jumped in Shanghai, sending the benchmark index up 1.5% - making its best three-day run in two years.
Chinese stocks just clocked in their best 3-day gain since 2016. #Yay #加油 pic.twitter.com/w3yDwjR2ZI
— David Ingles (@DavidInglesTV) July 24, 2018
Trade war and Brexit fears weigh on UK factories
Just in: Britain’s factories kept growing last month, but bosses are slashing some investment plans as trade war and Brexit fears grow.
The CBI has reported that UK manufacturing output rose in the last quarter. Around 35% of businesses reported an increase in new orders, and 20% reported a decrease, giving a balance of +15%.
Firms reported that new orders continued to expand “at a brisk pace”, with stronger demand from domestic customers making up for a slowdown in exports.
Orders growth remains robust, albeit with export orders growth softening. #CBI_ITS https://t.co/HkfNI6gXJx pic.twitter.com/sW7IoeESlh
— CBI Economics (@CBI_Economics) July 24, 2018
However, firms are cautious; 18% of firms said they were more optimistic about the general business situation than three months ago and 21% were less optimistic, giving a balance of -3%.
Tom Crotty, Group Director of Ineos and Chair of CBI Manufacturing Council, says:
“It’s great to see the manufacturing sector firing on all cylinders, with production revving up again after the slowdown earlier this year.
“But rising trade tensions and ongoing uncertainty over our future trade and customs arrangements are clearly taking their toll on manufacturers’ confidence and investment.”
With Donald Trump hiking tariffs, and Britain possibly heading for a ‘no-deal’ exit from the EU, firms are axing their spending on “intangible” assets, such as product & process innovation and training and re-training.
Investment in this area is expected to fall at a pace unseen since the global financial crisis, the CBI warns.
Manufacturers are dialling down on planned investment in “intangible” assets at a pace unseen since the financial crisis. #CBI_ITS https://t.co/HkfNI6gXJx pic.twitter.com/kyAjTvBIoM
— CBI Economics (@CBI_Economics) July 24, 2018
Newsflash: Britain’s Serious Fraud Office has launched a new attempt to prosecute Barclays bank over its emergency fundraising from Qatar during the 2008 financial crisis.
The SFO has applied to the High Court to get charges against Barclays PLC and Barclays Bank (which holds its banking licence to operate in different countries) reinstated.
Barclays says it will defend the application brought by the SFO.
Two months ago, the Crown Court dismissed charges that Barclays had conspired to commit fraud by false representations, and provided “unlawful financial assistance” to Qatar over the fund-raising.
Updated
Here’s some reaction to this month’s eurozone slowdown, from Oxford Economics’ Angel Talavera:
PMIs continue to show a European economy under pressure and which has shifted to a lower gear. So far we're quite comfortable with our 0.4% q/q GDP forecasts for this year.
— Angel Talavera (@atalaveraEcon) July 24, 2018
...and from Piet Christiansen of Danske Bank:
🇪🇺Euro area #PMI - weak first indication of Q3. Eq 0.4% qoq
— Piet P.H. Christiansen (@pietphc) July 24, 2018
-Except in DE, the outlook is hampered by worries on trade war, which “intensified markedly in July”.
- V important for #ECB and with increased concern, also as diverging picture between DE and other EA. pic.twitter.com/ULLUPTdcqC
Trader Marc-André Fongern points out how Germany is outperforming the rest of the eurozone this month:
*GERMANY JULY MANUFACTURING PMI 57.3; FORECAST 55.5. $EURUSD pic.twitter.com/GkujZKOJ8B
— Marc-André Fongern (@Fongern_MA) July 24, 2018
Eurozone growth slows as trade war fears hit exports
Growth across Europe’s private sector is slowing this month, according to a new survey of purchasing managers across the region.
Data firm Markit’s ‘composite output’ index has fallen to 54.3, from 54.9 in June, due to a slowdown in growth at service sector companies.
Its manufacturing PMI index held steady at 54.2, but factory bosses reported the slowest growth in export orders in almost two years.
Markit’s chief business economist, Chris Williamson, says Europe’s economy has entered July on a “soft footing” - amid worries about trade disputes.
“Given the waning growth of new business and further slide in business optimism, the outlook has also deteriorated, notably in manufacturing, where the surveys saw worries about trade wars intensify markedly in July.
“While there are signs that improving domestic demand in many countries is helping drive robust service sector expansion and support manufacturing, a worsening picture for export growth is clearly having an increasingly detrimental effect on manufacturing.
Eurozone #PMI manufacturing output grew at a rate unchanged
— Chris Williamson (@WilliamsonChris) July 24, 2018
on June’s 19-month low, subdued by weakening export trend. July saw smallest monthly rise in export orders since August 2016 https://t.co/0Wv2bBBJIZ pic.twitter.com/P8JAAGmPbX
Much of the growth came from Europe’s largest two members. Markit adds. Growth in the periphery hit its lowest level since autumn 2016, though.
By country, faster growth in Germany contrasted with a slight slowing in France. Elsewhere, growth was the weakest for 21 months, slipping lower in both manufacturing and services.
The rate of growth of Germany’s private sector economy rebounded from a 20-month low in May to a five-month high, driven by a stronger increase in manufacturing output. But France saw the second- weakest expansion in 18 months, stymied in particular by near-stagnant manufacturing.
European stock markets have all opened higher, as Alphabet gives the technology sector a boost.
The Europe-wide Stoxx 600 index has gained 0.4%, with the mining sector up 1% and tech gaining 0.5%.
Britain’s love for a (properly mixed) gin and tonic has swept mixer maker Fever-Tree’s shares to a fresh record high.
They surged to £39.87 in early trading, up from $34.60 last night, after Fever-Tree posted a 45% jump in revenues this year.
The company has also landed a deal with America’s largest wine and spirits distribution company, leaving it optimistic about the future.
CEO Tim Warrillow declared:
Given the strong performance in the first half of the year, the Board anticipates that the outcome for the full year will be comfortably ahead of its expectations.”
Anyone who had the foresight to buy Fever-Tree’s shares in 2014, when they were worth below £2, can afford a cheeky double G&T tonight.
Updated
England football drives UK alcohol spending to record high
Back in the UK, supermarkets are rubbing their hands after enjoying a boost from England’s World Cup run.
Data firm Kantar reports that sales of alcohol at supermarkets surged to £287 million during the week that the England football team played (and beat!) Colombia and Sweden. That’s a record, if you exclude Christmas and Easter.
Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, explains:
“England may not have won the World Cup – but its journey to the semi-finals not only helped to kickstart the summer, but supermarket sales to boot.
“Over the past month, football-frenzied customers visited supermarkets an extra 13 million times as they hurried to stock up on World Cup-viewing essentials, with alcohol in particular the stand-out winner.
Supermarkets also saw strong demand for BBQ products and sun cream:
McKevitt adds:
With the hot and sunny weather showing no signs of letting up, al fresco dining has continued to tempt shoppers. Over the past month, sales of firelighters and fresh burgers rocketed by 47% and 30% as customers honed their barbecuing skills.
Meanwhile, sun care products and painkillers were both in demand: sales of sun creams jumped by 38%, while nearly a third of all households picked up pain-killing tablets over the past month.
[Those pain killers might have something to do with those alcohol sales....]
Updated
Alphabet results: What the experts say
Financial analysts are impressed by the ability of Google’s parent company to keep growing fast, even with an EU antitrust case hanging over it.
As Richard Kramer of Arete Research puts it:
“There was never a question about Google’s dominance of a buoyant digital ads market”
JMP Securities analyst Ron Josey agrees that Google’s core revenue stream, web adverts, remains strong:
“First and foremost, Google Sites revenue has continued to grow, it’s the fourth quarter in a row of accelerating growth rates.
The company’s continued ability to reinvent or launch new ad products that have been adopted by advertisers, and that drives return on investment.”
Forrester Research’s Collin Colburn said the $5bn fine imposed by commissioner Margrethe Vestager last week was “pretty big” for most companies, but only a “slap on the wrist” to Google.
But Naeem Aslam of Think Markets argues that Google must avoid further financial penalties, for the sake of its reputation:
Today, it is all about Alphabet; Google is the king of the advertisement and its ad business is in full throttle. The message is clear for its investors that the company is a monster in this arena and the EU regulatory backlash hasn’t been able to damage its number in any significant way.
The internet giant reported its earning number last night and it smashed all the estimates. The crown jewel, its ads business experienced growth of 24% and its second most important lucrative business; cloud services also added a strong number. The growth in the cloud services was 37%.
When we look at the Alphabet’s earning, it makes us comfortable that there is a moderate slowdown in spending. This means that the user acquisition cost is going down. This creates a more efficient environment for revenue growth. Having said this, the company cannot afford to have reputation damage and it still needs to bring fines under-control because eventually this would add go against Google’s values.
Updated
Last night, Google CEO Sundar Pichai reported that the company’s self-driving car division is making progress.
He told investors:
Waymo expanded its partnership with Fiat Chrysler with the option to add up to 62,000 Chrysler Pacifica minivans to its self-driving fleet.
And lastly Waymo announced that it has driven more than 8 million fully autonomous miles with most of those on city streets.
Pichai also revealed that Google Translate got a boost during the World Cup.
Pichai told investors he was:
“...extremely proud to see the positive feedback on how useful Google Translate was for people who traveled to Russia”
In these simple moments, when you’re in an unfamiliar place or you don’t know the language, Google is there to help with the right information at the right time.”
The agenda: Google cheers markets
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European investors are in cheerier mood today, after Google’s parent company smashed expectations last night.
Alphabet shrugged off the impact of its penalty for breaking European competition rules, by posting revenues of $26.24bn in just the last three months, beating expectations of $25.5bn. That’s up from $20.9bn a year earlier.
Profits dipped to $2.8bn from $4.1bn, but they would have been a sparkling $7.8bn but for the $5bn fine imposed by the EU last week.
Chief financial officer Ruth Porat declared the company had delivered “another quarter of very strong performance”. Wall Street agreed - Google’s shares jumped by 4% in after-hours trading following the results.
Alphabet's surprise strong results bolster the company's confidence in the face of $5 billion fine from Europe https://t.co/EwMrX7GoJC pic.twitter.com/cg8IXDe62i
— Bloomberg (@business) July 24, 2018
This is feeding through to Europe this morning, with shares rising in London:
#FTSE100 Index called to open +30pts at 7685 pic.twitter.com/d0UbEoh0CV
— Mike van Dulken (@Accendo_Mike) July 24, 2018
The results showed that Google’s grip on Web advertising remains extremely strong, with 58% more ‘clicks’ on its mobile and YouTube adverts than a year ago.
Non-advertising revenues (such as mobile apps, cloud computing and Google Home speakers) jumped to $4.4bn, up from around $3bn a year ago.
Tech shares are expected to be in demand today after Alphabet’s ‘impressive set of results’, says Jasper Lawler of London Capital Group:
It wasn’t just the headline figures impressing traders, but also a surprise drop in costs reported by Alphabet. Costs had been increasing at a concerning rate over previous quarters as Alphabet played catch up in areas such as developing its cloud business and consumer business.
These higher costs had been squeezing margins causing concern particularly among short term traders. Unexpectedly lower costs have eased these fears, boosting demand for the stock in the process.
Here’s our news story on the results:
Also coming up today
There’s a flurry of corporate news today, as companies clear the decks before the summer holidays.
Swiss Bank UBS posted a 12% rise in pre-tax profits in the last quarter, thanks to its investment banking arm. European carmaker PSA has reported record earnings, after the takeover of Opel-Vauxhall last year.
But UK energy producer Drax’s profits fell 15% in the first half of the year, following various outages. And among the the smaller companies, tonic and mixer-maker Fevertree has posted another big jump in profits - adjusted earnings rose 35% in the last six months, to £34m. More on all hose shortly...
On the economics side, we find out how Europe’s companies are faring this month when Markit releases its ‘flash’ Purchasing Managers Survey for July. Later, the CBI publishes its healthcheck on UK factors -- will there be signs that Brexit or trade tariffs are hurting?
The agenda
- 9am BST: Eurozone flash PMIs for July
- 11am BST: CBI Industrial Trends survey of UK manufacturing
Updated
