Strong HSBC earnings and a carry-over from Wall Street closing higher on Friday is feeding through to a positive start for European equities. Shares of HSBC are expected to open higher after Europe’s biggest bank posted a rise in profits in the second quarter. On Wall Street, a modest slowdown in job growth during July wasn’t enough to spoil the mood for equity investors. After confidence in tech, shares were dented by Facebook (NASDAQ:FB) earnings, Apple (NASDAQ:AAPL) reaching a market cap of $1trillion has carried extra weight.
Celebration of Apple’s success was a little more muted in Asia thanks to fresh concern over trade. China’s proposal to tack duties onto $60bn of US goods may ultimately encourage the US to back down, but for now is simply another tit-for-tat move that dampens the likelihood of an immediate resolution. We think prevailing attitudes in the White House will mean the latest threat from China results in the US pressing ahead with 25% tariffs on $200bn Chinese imports.
In forex markets, action by the People’s Bank of China has proven effective at pausing sharp declines in the offshore yuan. The offshore yuan continued to move higher against the dollar in early Monday trading as traders brace for the new higher margin requirements on forward contracts. It was a different story for the onshore yuan, which was fixed at its lowest since May 2017. Perhaps the most important data release this week will be China foreign reserves for July. Whether there is a rise or fall in the reserves will either deflect and support the idea that the yuan has been deliberately weakened. Any evidence of deliberate currency manipulation will be fuel to the trade war fire.
Outside of China, currencies are still digesting the latest NFP data. The dollar had initially dropped as job growth missed expectations, but quickly reversed. Momentum still favours a stronger dollar. The dovish hike from the Bank of England and the widening of the 10-year yield target by the Bank of Japan demonstrate the very slow return to normal monetary policy from global central banks. The others have started to play catch-up to the Fed, but it is still way out in front.
Opening calls
FTSE to open 23 points higher at 7682
DAX to open 45 points higher at 12,650
CAC to open 22 points higher at 5500