- Poor EoY results helped pushed the FTSE lower yesterday as miners sold off, whilst the White House threat for further Chinese tariffs had a negative impact on the S&P energy and industrial sector which also suffered.
- In the US the Fed decided to hold rates ahead of a likely September hike. Range remains in the 1.75 to 2 per cent channel.
- According to a US trade representative, the refusal of China to meet US demands, along with implementation of retaliatory tariffs on US goods, spurred the decision to increase the 10% tariff to 25% on $200bn worth of Chinese imports.
- After consecutive losses for the previous couple of days, oil prices rose over the last session as speculators look for a bounce.
- BoE widely expected to raise interest rates today. If a hike is confirmed from Threadneedle Street later today, this would only be the second this decade. Video from IGTV talking about the banks interest rate rises is below.
Asian overnight: Trade war concerns have come back into focus to see Asian markets on the decline once again. Losses in Asian equity markets are substantial with China's Shanghai Composite down over 2% on the day. Chinese and Hong Kong stocks were the big losers amid a sea of red overnight, as markets reacted to the potential of the US to raise a 25% tariff on $200 billion worth of Chinese imports. Recent tones of dissatisfaction from the Chinese over US blackmail seem to have a basis in this threat, and with the Chinese importing nowhere near $200 billion worth of US goods, this raises questions over what their response will be. The main data point overnight came from Australia, where a sharp rise in the trade balance surplus highlighted the sharp deterioration in imports (-1% from 3%) rather than anything major on the exports side (3% from 4%).
UK, US and Europe: Looking ahead, the UK PMI focus continues, with the construction sector under the microscope in the morning. That UK theme continues at midday, with the Bank of England widely expected to raise rates for the first time this year. A relatively quiet US session means that there will be a greater focus on wider economic issues and corporate earnings reports. With Caterpillar, Apple, and Tesla all out of the way, today sees reports from the likes of GoPro, Kellogg, and AIG.
South Africa: US Index futures are also lower but to a lesser extent, and in turn we are expecting a soft start on the Jse Top40 Index today. The dollar has firmed and precious metals remain at depressed prices. Base metals trade mixed this morning. BHP Billiton is down 3.3% in Australia suggestive of a weak start for local diversified resources. Tencent Holdings is down 3% in Asia suggestive of a soft start for major holding company Naspers.
Economic calendar - key events and forecast (times in BST)
9.30am – UK construction PMI (July): expected to fall to 52.5 from 53.1. Market to watch: GBP crosses
12pm – BoE rate decision: an increase in interest rates to 0.75% is possible, and would be expected, but given recent weakness in UK data the bank may yet demur once again. Markets to watch: FTSE 100/250, GBP crosses
1.30pm – US initial jobless claims: expected to rise to 220k from 217k. Market to watch: USD crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
- Barclays saw their H1 profits whittled away amid huge litigation costs and settlements eroded what would have been a 20% rise in pre-tax profits for the firm. Instead, pre-tax profits fell to £1.6 billion, from £2.3 billion after a circa £2 billion pay-out, which includes a £1.4 billion settlement with the US DoJ. Looking behind those charges, the company saw a strong performance, with the UK arm raising pre-tax profits by 30%.
- Aviva reported a 2% fall in operating profits compared with last year, with the firm citing the impact of disposals, tough market conditions in Canada and higher weather related claims for the fall. Despite this, they expect to see these trends to reverse in H2, with the firm remaining on track to hit their 5% growth target for the year. Their EPS number came in above market estimates, with an operating EPS of 26.8p (vs 25.1p expected). The dividend was increased by 10% to 9.25p per share.
- Rolls-Royce expects their 2018 earnings results to come in towards the upper end of its guidance range, following a stronger than expected showing from their civil aerospace and power systems businesses. This comes despite a £554 million charge for issues relating to their Trent 1000 engine, which has been shrouded by issues over their durability. That figure will cover the Trent 1000 issues up until 2022. On the earnings side, the firm saw underlying revenues jump 14%, with underlying profits rising by £205 million, to £141 million.
- Liberty Holdings (SA) Interim results showed normalised headline earnings per share to have increased by 6%
Elementis upgraded to overweight at JPMorgan
Asos rated new outperform at Wells Fargo
Gamma Communications rated new buy at Citi
Norma upgraded to buy at HSBC
Macquarie upgrades AECI to outperform with a target price of 12800c
Renaissance Capital upgrade African Rainbow Mineralsto buy with a target price of 15000c
Shell cut to equal-weight at Morgan Stanley
Sodexo downgraded to market perform at Bernstein
Subsea 7 downgraded to underperform at Macquarie
WDP downgraded to neutral at Kempen & Co
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