Europe Slips While Dow Drives Higher

Stocks are in the red heading into the close as dealers lock in profit from recent gains.

Europe

Expectations of lower rates from the Fed lifted stocks yesterday and this morning, and now we are seeing a little reversal. The mood has slipped back to neutral, rather than optimism, but it is a far cry from pessimism.

Darty Group revealed a 36% increase in annual pre-tax profit, and revenue rose by 32%. The numbers were welcomed by investors as in recent months there have been underwhelming updates from firms in the travel sector, but the figures from Darty show consumers are keen to go out and spend on tourism. The company cautioned about fuel costs and operating overheads, but it also it is on track to achieve next year’s target.

Indivior (LON:INDV) lifted its revenue and profit forecast, and the update was a shot in the arm for the stock, although some of the move has been reversed. The company now predicts revenue will be $670 million - $720 million, and the previous forecast was for between $525 million and $575 million. The profit guidance is now between $80 million and $130 million, and keep in mind the firm was previously pencilling in a loss of $40 million to a profit of $10 million. The stellar performance of the Suboxone drug was cited as the reason behind the guidance lift. Indivior was spun-off from Reckitt Benckiser a number of years ago, and today Reckitt paid a $1.4 billion fine form the US Department of Justice, and the fine was connected to the Suboxone drug.

UK house builders like Barratt Developments (LON:BDEV), Taylor Wimpey (LON:TW), Persimmon (LON:PSN) and Berkeley Group are all higher this afternoon after the Royal Institute of Chartered Surveyors house price measure edged up to -1, which was the strongest reading since August 2018. The update gave investors some hope about the UK property market, which has undergone some uncertainty on account of Brexit.

US

The Dow Jones traded above 27,000 for the first time ever, but sentient has cooled a little. Jerome Powell is speaking in Washington DC, and he has covered many topics so far, but he hasn’t really touched on monetary policy. Yesterday, he left the door open to cutting rates, and that sentiment is still doing the rounds.

US CPI dipped from 1.8% to 1.6% in June – meeting forecasts, but the core reading edged up to 2.1% from 2%. The cooling of the headline rate will add weight to the argument the Fed should loosen monetary policy, but the rise in the core reading indicates that underlying is strong, and could be used as counter argument in the face of the dovish chatter. The jobless claims rate edged lower from 222,000 to 209,000, which is further proof the jobs market is healthy.

Bed Bath and Beyond shares are lower this afternoon after the group posted broadly disappointing numbers. First-quarter adjusted EPS fell by 68% to 12 cents, but traders were expecting 8 cents. Same-store-sales declined by 6.6%, while the consensus estimate was for a fall of 5.6%. Total revenue for the three month period dropped by over 6%, and that marginally undershot the consensus estimate. The company has been struggling for some time, and activist investors have been applying pressure to management, who are going to review the overall business.

FX

EUR/USD is fractionally higher this afternoon thanks to the slight dip in the US dollar. FX traders are keeping an eye on Mr Powell, but volatility in the greenback has been low. German CPI jumped to 1.5% in June, from 1.3% in May, and it is encouraging to see an increase in demand in a lacklustre economy.

GBP/USD has been helped by the Bank of England financial stability report. The update said the financial system is more prepared for Brexit, but some risks persist. The report claimed that UK banks have enough capital to withstand a disorderly Brexit and a trade war, and that lifted the pound.

Commodities

Gold is in the red as profit taking has set in, but the metal is still holding above the psychologically important $1,400 mark. The metal has largely been range bound recently, and while the perception that the Fed will loosen rates later this month remains, it is likely to remain in the upward trend.

Oil is broadly unchanged on the day after yesterday’s surge. Political tensions in relation to Iran and concerns about falling stockpiles in the US along with the OPEC+ production cuts are playing on traders’ minds.

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