European markets have opened lower this morning taking their cues from the sharp falls in US markets after the US Federal Reserve declined to give markets what they wanted in the form of a time line for further rate cuts in the coming months.
The reluctance of the Fed to pre-commit is understandable given that the US economy is still performing quite well, relative to its peers, and as such it reasserts its commitment to being data dependent.
Not surprisingly the Fed’s actions didn’t go down well with President Trump, who didn’t take long to express his displeasure, but that was always likely to be the eventual outcome whatever the Fed did.
The President is slowly realising that as far as the central bank is concerned you don’t always get what you want.
Royal Dutch Shell (LON:RDSa) shares have slid on the open after Q2 profits missed expectations. Profits came in at $3.6bn, down 25% from a year ago, and well below expectations of $4.9bn.
Shell have blamed the miss on profits on the recent weakness in the oil price, however this doesn’t really stack up given that Q2 average oil prices were higher than in Q1.
It would appear that the company’s bigger reliance on natural gas and petrochemicals is the main reason behind the slide in profits, as weaker prices weighed on its margins. LNG prices have more than halved this year and this appears to have played a big part in this profit miss.
Despite the miss the company still managed to generate $11bn of cash flow, a decent increase from a year ago.
Australian miner Rio Tinto (LON:RIO) is lower despite posting its best first half performance since 2014. A rise in iron ore prices helped contribute to this outperformance, however an $800m write-down on its operations in Mongolia appears to have prompted some of this weakness, as the starting date for production got pushed out into the middle of 2022, with costs set to rise by up to $2bn.
Barclays (LON:BARC) latest update was a bit of a mixed bag, improvements in the investment bank, which is likely to take the heat off Jes Staley with respect to Edward Bramson’s insistence that this division is spun off. Here we saw improvements in both fixed income and equities, while the retail bank was held back by the ongoing uncertainty around the UK economy and the political noise of Brexit.
London Stock Exchange confirmed this weeks earlier story, that it is acquiring Refinitiv for $27bn at the same time as announcing its latest H1 trading update, sending the shares up further to fresh record highs.
Total revenues were up by 7% to over the £1bn mark, while adjusted profits before tax rose 1% to £363m, with strong growth in its clearing division LCH. The company increased the dividend by 17% to 20.1p a share.
On the data front the latest manufacturing PMI’s reinforce the case for the European Central Bank to embark on further measures to ease policy when they next meet in September, with all the main European economies posting numbers on contraction territory.
The latest UK manufacturing PMI also came in below 50, coming in at 48 in July, unchanged from June
After last night’s big falls US markets look set to enjoy a modest rebound on the open, however the reluctance of the Fed to pre-commit to further rate cuts in the near future is likely to limit the upside in the short term.
The US dollar has pushed to a new 2 year high against a basket of currencies, with the euro also hitting a new two year low, after the Fed cut rates by 0.25%, and indicated they weren’t in a rush to do any more.
The last thing the pound needs now is a turbocharged US dollar, so last nights Fed meeting was bad news for the prospect for a rebound in the pound. The key level remains down near the 1.1980/1.2000 level and 2017 lows.
A break through here has the potential to open up a move towards 1.1500, which means the Bank of England will need to be particularly careful about how it navigates its way through today’s inflation report and press conference. It will need to show that it is Brexit ready without adding to the downward pressure on the pound.
Dow Jones is expected to open 20 points higher at 26,884
S&P500 is expected to open 1 point higher at 2,981
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