Data that suggests self-sustaining economic growth in Europe was offset by unease in markets about North Korea and resulting tensions at the upcoming G20 summit. It was typically nervy trading before the release of minutes from the latest Federal Reserve meeting. Initial demand for safe havens, like gold, after the North Korea successfully tested an intercontinental missile subsided by the time Wall Street opened for its first full day in the third quarter.
The euro rose after the well-received PMI data. France made an unusually large contribution toward the strength in European economic sentiment in June. Relief at the avoidance of a disruptive Le Pen presidency was palpable amongst French purchasing managers. The test will be whether Macron can combine his power in the presidency and parliament to sustain the confidence with transformative reform in France. A number of protests against his proposed reforms are a reminder that history is not on the side of ‘Macronomics’.
Comparatively disappointing service sector data, a drag from the heavily-weighted oil sector and Worldpay shares getting dumped after announcing a merger meant stocks in the UK were a little flat. Strong first-half results from Persimmon (LON:PSN) that indicate the housing market is taking the UK election in its stride made home builders amongst the top risers on the FTSE 100. Supermarket shares rose after Booker Group (LON:BOK), the wholesaler being bought by Tesco (LON:TSCO) reported 4% like-for-like sales growth.
Worldpay (LON:WPG) shares were dumped after its board agreed a merger with Vantiv (NYSE:VNTV). JP Morgan pulling-out meant shares had to price-out any chance of a bidding war. The concept of the deal seems straightforward and logical; combine the geographic strength of the two companies in payment processing. The strategy of geographic expansion explains plans for a joint-CEO and joint-headquarters at the new company. From a British-perspective, it’s a shame to see another ground-breaking UK tech company selling out to overseas competition, perhaps before reaching full potential on its own.
The British pound dropped after soft PMI data, which included the second-lowest level of business optimism since December 2011. Falling confidence in the service sector is compounded by the weakness in manufacturing reported on Monday. Rising prices will always slow consumption but it was hoped the advantage of a weaker currency to manufacturing would be a positive offset. Sterling managed to wind back some of its early loses because in the bigger picture, expectations are building that the Bank of England’s next move will be to lift rates.
US stocks opened higher but the gains were small before Federal Reserve minutes later today. The minutes should point to further rate rises this year and expand upon plans to shrink the balance sheet. We suspect it may need a “surprise factor” from the Fed minutes to send the dollar substantially higher or upset the uptrend in stocks.
Oil prices dropped on Wednesday after Russia said it would not support bigger output cuts by OPEC. The news came after oil recovered 50% of its drop since May 25 with its best string of daily gains in 2017. The market reaction to OPEC’s output cut extension would indicate investors don’t think its enough- and it seems Russia just snuffed out any chance of it becoming enough in the future. Volvo announcing it will go all electric by 2019 – the most aggressive push toward electric cars from a major car maker to date - feeds into the idea of lower long-term demand for gasoline.
Disclaimer: The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.