Just under 24 hours ago everything looked rosey for equity markets with European benchmarks hitting multi-year highs and US futures pointing to yet another record open on Wall Street. However, sentiment has changed quite markedly in the past day and now it looks like yesterday’s session may have been a turnaround Tuesday.
The reversal came around lunchtime when Home Depot results were announced, and the less than satisfying trading update took its toll almost immediately on Dow Jones futures which fell by around 80 points in short order. The stock is one of the largest components on the price weighted index, accounting for around 6% of the broader benchmark, and while it would be more than a little bit of a stretch to attribute the declines seen since on this one earnings update, it did coincide neatly with the daily highs for several major indices. As one of the leading consumer discretionary stocks in the US the cutting of the 2019 forecast and miss in revenue were both concerning and could be seen to reveal some wider weakness in what has been a resilient US retail backdrop for much of the year.
In reality the selling was actually likely driven by a change in sentiment as investors woke up to the myriad of potential risks which still threaten the market. The canary down the mine in this instance seems to have been the passage of a bill through the Senate which is aimed at backing protestors in Hong Kong. While this was a victory for human rights, it will likely infuriate Beijing and once more stoke tensions between the world’s two largest economies at a time when US-Sino trade developments are the main driving force for the markets. It feels like a phase one agreement on a trade deal has been already discounted several times over by investors and sentiment may be starting to sour.
UK election debate provides little insight
The first debate between the next potential prime ministers provided very little that we didn’t already know, with Boris Johnson and Jeremy Corbyn both not straying from their core messages. Polls conducted shortly after the event showed no decisive outcome in terms of a winner, but in a similar vein to the Tory leadership debates, Boris Johnson will probably have come out of it feeling slightly the happier. This is due in part to the sizable lead the Tories currently enjoy amongst opinion polls and in part due to Boris’s propensity for dropping a clanger and the less eventful these are the better for him as far as his party are concerned. The pound moved off its lowest level of the day during the debate but there was no lasting move and in early trade this morning the currency has dipped below the $1.29 handle to trade at its lowest level of the week - although this is actually more due to strength in the buck than weakness in sterling.