Europe
After a nine-day positive run leading out of the Greek debt crisis, European shares dropped back on Tuesday with poor results from pharmaceutical giant Novartis acting as a drag on Europe’s healthcare sector.
The new bailout negotiations between Greece and its creditors are expected to begin after Wednesday’s parliamentary vote in Athens on the remaining reforms signed up to by Greek PM Alexis Tsipras. There has been a suggestion that the talks should be concluded by August 20 but given the snail’s pace seen so far by Europe’s bureaucrats, this might be wishful thinking. With Greek banks now open for a second day, the next step will be the reopening of the Greek stock market, which could happen as early as this week.
The FTSE 100 was little changed on Tuesday after data showed the UK’s public finances improved less than expected but gold mining stocks including Fresnillo (LONDON:FRES) and Randgold (LONDON:RRS) saw some reprieve from the dumping that took place on Monday.
Royal Mail (LONDON:RMG) reported a mixed first half performance, where better parcel revenues were offset by continued weakness in the letter delivery business, resulting in a small drop in the share price.
After a three day run higher, shares of Easyjet were one of the biggest fallers on Tuesday ahead of a quarterly earnings update on Wednesday.
US
Disappointing quarterly earnings from IBM (NYSE:IBM) and United Technologies saw the Dow Jones Industrial Average open lower on Tuesday with the S&P 500 also pulling back from near record highs. Widely anticipated results from Apple (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) will be released after the close.
Shares of IBM opened lower after “Big Blue” saw a bigger than expected drop in revenues and guided to the lower end of the range for profits this year. IBM has seen revenues decline for 13 straight quarters; progress has been very slow reorientating away from the slowing PC business. IBM’s earnings woes were exacerbated by the strength of the US dollar.
United Technologies shares fell after the industrial and military manufacturing company narrowly beat earnings estimates but missed on revenues and revised down its full-year forecasts, in part to reflect the sale of its Sikorsky Aircraft business to Lockheed Martin.
Apple’s earnings after Tuesday’s close could be another doozy. The shares are sitting just below the April highs so another strong performance should see a new record, with the S&P 500 probably not far behind. The Apple Watch presents a bit more of an unknown for this quarter but sales would probably need to be really disappointing to outweigh the current trend of massive iPhone sales. Even if the Watch is not a long term success, there should be enough die-hard Apple fans to generate some impressive initial numbers.
FX
Rising commodity prices after the rout on Monday saw the US dollar lower against most of its major counterparts on Tuesday.
The New Zealand dollar has staged a three-day recovery ahead of the Reserve Bank of New Zealand meeting on Wednesday evening, European time. The general perception is that the RBNZ will drop rates again but with NZD/USD having dropped below its May 2010 lows, the rate cut looks largely priced in.
Having dropped almost 300 pips in six days, the euro was rebounding against the British pound on Tuesday, taking EUR/GBP back above 0.70. Sterling has been on a strong run so traders are lessening exposure ahead of the Bank of England minutes released on Wednesday.
Commodities
Gold recovered some more of its recent rout on Tuesday, with some technical support coming from the 50% retracement of the long bull run that started in 2001 and ended in 2009. So far the move on Monday has been taken as a stop-hunting raid and hasn’t been followed through with large institutional selling.
The whole of the commodities space recovered from the recent bout of selling with base metals including copper as well as crude oil and agricultural products all higher on the day.
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