The divergence in US markets continued overnight with a marginal new record high for the S&P500, as well as new records for the Russell 2000 and the Dow Jones transportation index, before slipping back into the close, but still on course for the longest bull market run in history.
This failure to push on higher, as buying momentum stalled, along with the news that President Trump’s former lawyer, Michael Cohen, pleaded guilty to violating campaign finance laws by arranging hush payments to two women Trump was alleged to have had affairs with, could well see investors look to take some profits today after a fairly mixed session in Asia and a lower open in Europe.
Cohen’s plea, which puts the President under the spotlight even more, and opens him up to charges of criminal conduct, has raised concerns that he might be vulnerable to impeachment in the coming months. While this is unlikely in the short term, any shift in the balance of power after the mid-terms in November, could increase that prospect if the Republicans lose their majorities.
Investor focus remains inevitably on the trade story with talks due to begin later today between the US and China ahead of the start of tomorrow’s $16bn of extra tariffs on a range of Chinese goods.
The increased scrutiny on President Trump’s behaviour could well prompt him to up the ante on trade in the days ahead in order to shift the terms of the debate away from events in New York, and the discussions on Michael Cohen and Paul Manaforte.
We got a sign of that at a campaign rally in West Virginia yesterday when the President said that he would slap a 25% tariff on all cars coming into the US from the European Union, an unwelcome reminder, despite his recent meeting with EU Commission President Juncker, that the disagreements with the EU remain far from resolved.
Despite these comments European markets have opened cautiously mixed, with the tone remaining cautious, particularly since the President has the $200bn tariff option in his pocket with respect to China, and this uncertainty is likely to see markets in the US also open lower despite yesterday’s record peaks.
The UK construction sector has had its problems this year with the collapse of Carillion, however away from that, the rest of the sector appears to be performing well. Having seen good numbers from Balfour Beatty (LON:BALF) last week, today’s numbers from Costain (LAGOS:COSTAIN) show the company is on track to meet its full year guidance. Improvements in margins have seen pre-tax profits came in at £21.4m, compared to £18.3m a year ago, while revenues came in at £758.7m, while the order book has orders of £3.7bn, 90% of which is repeat business.
The US dollar has stabilised after four successive days of losses ahead of today’s release of the latest FOMC minutes, which aren’t expected to be too instructive when it comes to expectations about how US policymakers view the US economy, which we may get further clues about when Jay Powell speaks later this week at Jackson Hole.
A September rate rise still seems a done deal given that US policymakers upgraded their outlook for the US economy earlier this month. With GDP forecasts already towards the higher end of forecasts markets will be looking for any evidence that policymakers are becoming uncomfortable with rising inflation expectations and whether there is any anxiety amongst US policymakers about events in emerging markets and trade.
On the earnings front US retail is once again in focus with the release of the latest Q2 numbers from Target. It does appear that US consumers are slowly starting to open their wallets again and Wal-Mart’s bumper results last week showed that the sector can still do well despite changing consumer habits. Today’s update from Target is likely to be crucial in terms of its on-line offering, and its grocery business given the heavy investment in this area, which saw its Q1 numbers miss expectations. At that update management reassured that its full year guidance would still be met, despite ongoing challenges from lower margins.
Dow Jones is expected to open 54 points lower at 25,758
S&P500 is expected to open 8 points lower at 2,855
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