Unicredit Leads Bank Shares Lower; Manufacturing Slows

UK and Europe

Bank and oil company shares led European markets lower on Monday after stress test results did little to revive confidence in the banking sector and the price of crude slid following another weekly rise in the number of US oil rigs. Disappointing UK and European PMI manufacturing data was another weight on sentiment.

The FTSE 100 slipped back beneath 6700 as gains in the basic resource sector were unable to offset weakness in bank, oil and homebuilder shares.

Banking shares across Europe had opened higher, led by Italy’s Monte dei Paschi (LON:0R7P) following an agreement on Friday for a private €5bn rescue deal. But it was another Italian bank that led to the sector’s gains coming unstuck. Shares of Unicredit (LON:0Q54) were temporarily suspended from trading after going limit down. With a below-average result in the stress test and as Italy’s most systematically-important bank, UniCredit felt the sharp end of investor mistrust.

Shares of Heineken (LON:0O26) dipped over 3% after a rise in first-half profits and revenues came short of analyst expectations. Heineken’s global diversity is helping it whether various economic storms around the world with a focus on regions that are growing. Gains in the likes of Vietnam and Mexico have outstripped declines in Africa and Eastern Europe including Russia. The generally strong first half performance reduces the need for Heineken to merge with a rival such as Carlsberg (CO:CARLa) or Diageo (LON:DGE) to fend off mega-brew competitor Anheuser-Busch Inbev SA (LON:0O1Z) / SAB Miller (LON:SAB), should the deal eventually happen.

Shares of BA-owner IAG (LON:ICAG) fell nearly 3% after it emerged Qatar Airways has upped its stake to over 20%

US

US stocks drifted lower on Monday as a slowdown in manufacturing at home and abroad saw traders hold off from adding to positions in the market. A merger of Elon Musk’s Tesla (NASDAQ:TSLA) and Solar City (NASDAQ:SCTY) helped edge the NASDAQ 100 into positive territory after a string of well-received tech earnings.

Shares of online crafts retailer Etsy (NASDAQ:ETSY) gained double digits after Citigroup (NYSE:C) initiated coverage of the stock with a “buy” rating, saying it sees good potential for margin expansion.

FX

The US dollar was higher against most major currencies on Monday as the Fed’s Kaplan suggested a September rate hike was “firmly on the table” whilst a more cautious Bill Dudley said he “wouldn’t rule out” further tightening this year. Data showed slowing manufacturing activity in July so the worry is that the sub-par 1.2% y/y GDP growth from Q2 is extending into Q3. The argument for a rate hike in September all but disappears if employment gains are not accompanied by rising economic growth.

The British pound fell on Monday after data showed UK manufacturing activity in July slumped to its lowest level since February 2013. The drop in sterling has helped boost export orders but this was more than offset by a weaker production and domestic orders. The reading of 48.2 was worse than the flash estimate of 49.1. It appears post-Brexit fears amongst manufactures were not just a flash in the pan.

Commodities

The price of oil gave up early gains to trade lower on Monday as rekindled fears the supply glut would be slower to unwind. On Friday Brent and WTI contracts rebounded off technical support from the 200 day moving average. Lacklustre Chinese economic data points to demand oil that isn’t growing fast enough to offset expanding OPEC production. Officials from Iraq said oil exports from Iraq’s southern ports rose to an average of 3.2m bpd in June, up from 3.175m in June.

Gold prices were subdued on Monday, pulling back modestly from large gains the previous week despite weaker than expected US manufacturing data. Data showing the US economy growing at half the pace expected has dented chances of a September rate hike and weighed on the US dollar.

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