A stabilisation in the Turkish Lira has helped European markets open slightly higher this morning, shrugging off some disappointing Chinese economic data which showed that fixed asset investment fell to a record low in July of 5.5%. There was further disappointment with a sharp fall in retail sales which rose 8.8%, below expectations of an improvement to 9.1%.
The data also contrasts with the significant improvement that we saw in last week’s China trade data which showed a sharp rise in imports. This appeared to suggest that demand remained solid, however the consumer data would appear to suggest the opposite. These types of conflicting signals increase the uncertainty surrounding how the Chinese economy is coping with the tariffs being imposed by the US and the prospect that we might see a sharper slowdown in the coming months.
German Q2 GDP came in better than expected at 0.5% easing expectations around a sharper slowdown in the euro area in Q2, and this morning’s latest EU Q2 GDP numbers, which were slightly softer than expected a couple of weeks ago, due to a sharper than expected slowdown in the French economy in Q2.
The rebound in the lira appears to be driven by a weaker US dollar, along with comments from Turkish business groups that urged the government to adopt tighter monetary policy and a roadmap to reduce inflation.
A recent meeting between White House national security advisor John Bolton and the Turkish Ambassador Kilic over Pastor Andrew Brunson, appears to have passed without any progress, on either side.
As a result of the rebound in the lira, we’re getting a little bit of a rebound in European banks after the recent sell-off.
The pound is also likely to be in focus again today as it struggles against a backdrop of rising Brexit concerns and some significant weakness over the last few days, falling to its lowest levels against both the euro and the US dollar in a year, despite an economy that continues to hold up fairly well.
Today’s economic data continues to show a UK economy that continues to add jobs with unemployment slipping further to a 43 year low of 4%, the lowest since the early 1975, with the latest wages data for the three months to June coming in at 2.7%, down slightly from an adjusted 2.8% from May.
Despite the resilience of the data, the inability of wages to show any signs of pushing up from their current levels continues to act as a significant imponderable. This is likely to make the calculus around another rise in interest rates much more difficult, and as such is unlikely to shift expectations about a rise much before March next year, unless significant progress is made in the ongoing Brexit negotiations between now and the end of the year.
On the companies front Chilean copper miner Antofagasta (LON:ANTO) reported first half revenues of $2.12bn, an increase of 3.6%, however, profits were down to $194.3m, down from $290.5m the year before, largely down to a rise in costs. The company kept its full year outlook unchanged saying it expected that a stronger second half performance would offset the decline in profits in the first half.
The rebound in European markets and the lira is expected to help boost US markets on the open, after yesterday’s declines.
On the company front, Home Depot is expected to offer a decent insight into the US consumer and housing market with its latest Q2 numbers.
Investors in Tesla don’t appear to be buying into the narrative that funding has been secured for a $420 buyout to take the company private despite CEO Elon Musk’s latest update to the markets yesterday. Certainly his claim that the Saudi’s are interested despite only owning a 5% stake appear to stretch credibility and call into question that any deal appears inevitable.
Dow Jones is expected to open 110 points higher at 25,297
S&P500 is expected to open 11 points higher at 2,833
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