Europe
European markets drifted lower at the open today after hints of a growth forecast cut over the weekend from IMF head Christine Lagarde and stayed there for most of the session with the German DAX dragged down by disappointing German industrial data.
German industrial production printed at a measly -1.8% contraction for June; way below expectations of a drop of -0.3%. This follows last week’s drop in factory orders and a second month of rising unemployment. Business and investor confidence in Germany as indicated by the PMI and ZEW reports has been dropping for months. Initially this was thought to be transitory as a reaction to the situation in Ukraine but now appears to have foreseen a slowdown.
Germany is still a strong economy but with the rest of Europe as trading partners; it is being pulled down by the weakness of neighbours which could be further evidence in tomorrow’s trade balance.
The German DAX underperformed the FTSE 100 today on the soft economic data; but this has not been the theme of the last week, where despite the poor data, the DAX rallied strongly to above 10,000 to test all-time highs whereby the FTSE 100 is still a way off its 1999 high.
The healthcare sector was the only highlight in the FTSE 100 where Astrazeneca Plc (LONDON:AZN) and Shire Plc (LONDON:SHP) led gains.
The house builders including Persimmon (LONDON:PSN) and Barratt Developments Plc (LONDON:BDEV) were all seeing losses despite good results for the first half from sector peer Taylor Wimpey Plc (LONDON:TW). The reason for the housing selloff was that the outlook for the second half was not quite as rosy as some were expecting from Taylor Wimpey given rising house prices.
Oil, gas and mining stocks were all in the red on the FTSE alongside the slump in metal and energy prices.
Engineering firm Weir Group (LONDON:WEIR) was a top riser on a broker-upgrade citing underappreciated oil and gas opportunities.
US
There wasn’t really any justification for a continuation of higher prices in US markets today with minimal economic data and some market participants likely still away for the long holiday weekend.
Focus is now shifting to the Fed minutes on Wednesday; inflation and unemployment are seemingly approaching targets so the report will be closely examined for any reference to inflation and the level of spare capacity in the labour market.
Although data from the US has been far from all positive this quarter; employment and now inflation seem to be ticking higher and this can’t have escaped the attention of Fed members.
This week will officially kick off earnings season for the 2nd quarter of 2014 with the report from Alcoa Inc (NYSE:AA) tomorrow. The aluminium company is expected to earn 12c per share on $5.64bn in revenue; this would be a 42% rise in earnings but a small decline in revenue over the same period last year.
The company’s results are inevitably tied to the market for aluminium; the price has been weak this year so it will be important to look for the company’s forecast for the metal’s global demand. Alcoa’ stock is up over 40% in 2014, far outstripping the S&P 500 so at these lofty levels; the company may need to start turning around the declines in revenue to maintain investor’s confidence in the company’s future.
FX
The US Dollar was mixed today following strong gains last week on heightened rate-hike expectations.
The Japanese yen was stronger going into tonight’s current account and bank lending reports with GBP/JPY falling 80 pips.
Commodities
Gold and Silver were lower today despite declining stock markets as the outlook looks rosier for the US economy given last weeks’ strong jobs number.
Crude Oil was trading down again as Libya increases supplies and the south of Iraq has still avoided conflict.
Corn and Wheat both dropped by over 2% as weather in the US pointed to about average harvest potential.
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