After several days of losses, European markets have opened slightly higher this morning, on reports out of Beijing that the US and China were set to sit down for a new round of discussions at the end of this month. This has prompted a rebound in the Chinese Renminbi from its recent lows while the continued recovery in the Turkish lira has alleviated short term concerns of a collapse in the currency.
While this is welcome from a contagion point of view and will help mitigate some of the upward pressure from rising prices within Turkey, it should not be taken as a sign that the crisis is over. A limitation on shorting the Turkish lira by the local regulator, along with a ledge from Qatar to invest $15bn in the Turkish economy has helped the lira continues its recent recovery from its lows at 7.24 earlier this week.
The bigger question is whether this is a case of crisis averted or crisis deferred, and the probability is that it is the latter given that Turkey’s problems remain unresolved, in that the economy still requires higher rates to help keep a lid on the inflationary pressures that have been unleashed on the Turkish economy.
The slide in commodity prices is the more worrying development with a sharp acceleration to the downside in copper prices along with zinc, lead, palladium and platinum yesterday, as concerns grow that China’s economy might be on the verge of a significant slowdown.
On the company’s front, in the wake of this week’s news that DIY chain Homebase is closing a number of unprofitable stores, B&Q owner Kingfisher (LON:KGF) reported Q2 numbers that came in better than expected, as the company benefitted from the hot summer weather in the UK, though it could be argued that some of the rebound is as a consequence of a weak Q1 where the bitterly cold weather suppressed its sales.
Whatever the reasons for the rebound it is still welcome with the UK and Ireland like for like sales at B&Q rising 3.6%, while Screwfix contributed a 5.5% rise in sales.
There was no Q2 rebound on the perennial drag, which has once again been the company’s French unit Castorama, which saw declines in like for like sales of 3.8%. Overall sales revenue came in at £3.26bn in a fairly encouraging quarter. It would appear that further measures are likely to be needed to help bring the French business back into favour, failing that more drastic action may be required in terms of store closures.
In the US the retail sector is once again set to be front and centre after Macy’s update yesterday saw the market ignore the fact that the company beat estimates on revenues and sales, with the shares finishing sharply lower. This year’s tax cuts have boosted consumer spending in the US, but the larger retailers are still having to compete on an uneven playing field against the likes of Amazon (NASDAQ:AMZN) who don’t have the same overheads.
Today’s update from Wal-Mart (NYSE:WMT) is likely to show whether the US’s largest big box retailer is doing enough to combat this on-line threat. We may well get updates on its plans to sell its stake in Asda to Sainsbury as well as its recent purchase of Indian e-commerce giant Flipkart, stealing a march on Amazon on what could be a huge future market. The company stated it the purchase was likely to reduce its profits for 2019 by about 25c a share. Its stake in Chinese e-commerce fine JD.com has also had its ups and downs after the company posted a $1.8bn loss in the previous quarter.
The pound has continued to struggle against a backdrop of rising chatter about the risks of a no deal Brexit, despite economic data which has once again pointed to an economy that even if it’s not firing on all cylinders, is still moving forward.
Today’s retail sales numbers for July are expected to paint a mixed picture of the UK economy with consumer spending on food and drink likely to hold up well, while overall footfall in the high street is likely to have struggled as consumers head to the beach, or prefer days out to traipsing around the shops. In June we saw evidence of that trend with a decline of 0.6% despite England’s World Cup run prompting a spike in food and drink sales. Today’s numbers are expected to show a weak start to Q3 albeit a rebound to 0% after England’s exit at the semi-final stage on 11th July.
US data due out is expected to show weekly jobless claims to come in at 215k, reflecting continuing tight US labour market.
Dow Jones is expected to open 80 points higher at 25,242
S&P500 is expected to open 6 points higher at 2,824
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