Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

European Markets Moved Up Again This Morning After Stocks Rallied On Wall Street

By Markets.com (Neil Wilson)Market OverviewJul 15, 2020 10:59
uk.investing.com/analysis/european-markets-moved-up-again-this-morning-after-stocks-rallied-on-wall-street-200443989
European Markets Moved Up Again This Morning After Stocks Rallied On Wall Street
By Markets.com (Neil Wilson)   |  Jul 15, 2020 10:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

European markets moved up again this morning after stocks rallied on Wall Street and futures indicate further gains for US equity markets despite big bank earnings underlining the problems on Main Street. Sentiment recovered somewhat after Moderna’s vaccine candidate showed ‘promising’ results from phase 1 trials. It is too early to call a significant breakthrough, but it’s certainly encouraging. Cyclical components led the way for the Dow with top performers the likes of Caterpillar and Boeing (NYSE:BA), as well as energy names Exxon (NYSE:XOM) and Chevron (NYSE:CVX) up over 3% as the index rose over 500pts, or 2.1%, its best day in over two weeks. Apple shares regained some ground to $388 ahead of an EU court ruling today on whether the company should repay €13bn in unpaid taxes. Asian markets were mixed, with China and Hong Kong lower as US-China tensions rose, but shares in Japan and Australia were higher. European shares advanced around 0.75% in early trade, with the FTSE reclaiming 6,200 and the DAX near 12,800.

However, Tuesday’s reversal off the June peak may still be important – lots of things need to go right to extend the rally and you must believe this reporting season will not be full of good news, albeit EPS estimates – such as they are - may be relatively easy to beat. My sense is what while the stock market does not reflect the real economy, this does not mean we are about to see a major drawdown again like we saw in March. The vast amount of liquidity that has been injected into the financial system by central banks and the fiscal splurge will keep stocks supported – the cash needs to find a home somewhere and bonds offer nothing. It will likely take a significant escalation in cases – a major second wave in the winter perhaps – to see us look again at the lows. For the time being major indices are still chopping around the Jun-Jul ranges, albeit the S&P 500 and DAX are near their tops. Failure to breakout for a second time will raise the risk of a bigger near-term pullback, at least back to the 50% retracement of June’s top-to-bottom move in the second week of that month. 

US bank earning highlighted the divergence between the stock market and the real economy. JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) posted strong trading revenues from their investment bank divisions but had to significantly increase loan loss provisions at their consumer banks. Wells Fargo – which does have the investment banking arm to lean on – increased credit loss provisions in the quarter to $9.5bn from $4bn in Q1, vs expectations of about $5bn. This begs the question of when the credit losses from bad corporate and personal debt starts to catch up with the broader market. Moreover, investors need to ask whether the exceptional trading revenues are all that sustainable. Shares in Citigroup and Wells Fargo (NYSE:WFC) fell around 4%, whilst JPMorgan edged out a small gain. Goldman Sachs, BNY Mellon and US Bancorp (NYSE:USB) report today along with Dow component UnitedHealth (NYSE:UNH). 

In the UK, retail earnings continue to look exceptionally bleak. Burberry reported a drop in sales of 45% in the first quarter, with demand down 20% in June. Asia is doing OK, but the loss of tourist euros in Europe left EMEIA revenues down 75% as rich tourists stayed clear of stores because of lockdown. Sales in the Americas were down 70% but there is a slight pickup being seen. Encouragingly, mainland China grew mid-teens in Q1 but grew ahead of the January pre COVID level of 30% in June, Burberry said. Shares opened down 5%. Dixons Carphone reported a sharp fall in adjusted profit to £166m from £339m a year before, with a statutory loss of £140m reflecting the cost of closing Carphone stores. Electricals is solid and online sales are performing well, with the +22% rise in this sector including +166% in April. Whilst Dixons appears to have done well in mitigating the Covid damage by a good online presence, the Mobile division, which was already impaired, continues to drag. Looking ahead, Dixons says total positive cashflow from Mobile will be lower than the previous guidance of about £200m, in the range of £125m-£175m. Shares fell 6% in early trade. 

US-China tensions are not getting any better – Donald Trump signed a law that will allow the US to impose sanctions on Chinese officials in retaliation for the Hong Kong security law. The White House has also ended the territory’s special trade status – it is now in the eyes of the US and much of the west, no different to rest of China. This is a sad reflection of where things have gone in the 20+ years since the handover.  Britain’s decision to strip Huawei from its telecoms networks reflects a simple realpolitik choice and underscores the years of globalisation are over as east and west cleave in two.

The Bank of Japan left policy on hold but lowered its growth outlook. The forecast range by BoJ board members ranged from -4.5% to -5.7%, worse than the April range of -3% and –5%. It signals the pace of recovery in Japan and elsewhere is slower than anticipated. 

Federal Reserve Governor Lael Brainard talked up more stimulus and suggested stricter forward guidance would be effective – even indicating that the central bank could look at yield curve control – setting targets for short- and medium-term yields in order to underpin their forward guidance. 

In FX, we are seeing the dollar offered. EURUSD has pushed up to 1.1430, moving clear of the early Jun peak, suggesting a possible extension of this rally through to the March high at 1.15. GBPUSD pushed off yesterday’s lows at 1.2480 to reclaim the 1.26 handle, calling for a move back to the 1.2670 resistance struck on the 9-13 July.  

Data today is focused on the US industrial production report, seen +4.3% month on month, and the Empire State manufacturing index, forecast at +10 vs -0.2 last month. The Bank of Canada is expected to leave interest rates on hold at 0.25% today, so we’ll be looking to get an update on how the central bank views the path of economic recovery.  Fed’s Beige Book later this evening will offer an anecdotal view of the US economy which may tell us much more than any backward-looking data can.

Oil continues to chop sideways ahead of the OPEC+ decision on extending cuts. WTI (Aug) keeps bouncing in and off the area around $40 and price action seems to reflect the uncertainty on OPEC and its allies will decide. The cartel is expected to taper the level of cuts by about 2 million barrels per day from August, down from the current record 9.7 million bpd. Secretary General Mohammad Barkindo had said on Monday that the gradual easing of lockdown measures across the globe, in tandem with the supply cuts, was bringing the oil market closer to balance. However, an unwinding of the cuts just as some economies put the brakes on activity again threatens to send oil prices lower. OPEC yesterday said it expects a bullish recovery in demand in the second half, revising its 2020 oil demand drop to 8.9m bpd, vs the 9m forecast in June. The cartel cited better data in developed nations offsetting worse-than-expected performance in emerging markets. EIA inventories are seen showing a draw of 1.3m barrels after last week produced an unexpected gain of 5.7m barrels

European Markets Moved Up Again This Morning After Stocks Rallied On Wall Street
 

Related Articles

European Markets Moved Up Again This Morning After Stocks Rallied On Wall Street

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email