Equities look a little firmer on Tuesday but there is not much conviction behind the move. Worries over the latest escalation in trade have worn off for the time being. With Chinese stocks in bear market territory, things are looking a little oversold. So with most sectors moving in unison across Asian markets, without any standout leaders, today’s lift higher looks like a temporary moment of relief.
Wall Street managed to brush off trade uncertainties in the previous session, instead of turning its focus to earnings. Second quarter results for the S&P 500 have exceeded already high expectations. The feeling after a bumper Q1 was that this was as good as it gets, and equities struggled thereafter. The numbers from Q2 would suggest corporate America still has more to offer.
The US dollar held onto yesterday’s gains overnight with the tailwinds of strong July US jobs figures and the prospect of inflationary US tariffs still intact. Cable closing below the important 1.30 threshold is a demonstration of the market’s rising concern that the UK will bow out of the European Union without a deal. Theresa May trying to shore up support from European leaders does not address the fact that according to recent opinion polls, a majority of the population think she is handling Brexit badly. Unless Mrs May does a U-turn on Chequers, we expect a leadership contest in the fall.
The Australian dollar was little changed after the RBA kept rates on hold, as expected. The Australian benchmark rate has now been stuck at 1.5% for two years and the RBA does not look like it is in any hurry to tighten policy. Australia is caught smack bang in the middle of the US trade war with China. Australia relies on the US for its national defence but does most of its international trade with China. Australia looks uniquely vulnerable to an escalating trade war so, with monetary policy that is already higher than most parts of the world, the next move in rates in our view is closer to 50/50 up or down.
Opening Calls
FTSE to open 5 points higher at 7668
DAX to open 13 points higher at 12,611
CAC to open 7 points higher at 5484