European markets have opened slightly firmer this morning, taking their cues from another record close for the S&P500 overnight, with the FTSE100 moving above 7,600 for the first time since August last year.
Asia markets on the other hand finished the day on the back foot after the US Commerce department announced that tariffs would be imposed on steel from Vietnam, that was originally produced in South Korea. South Korea also downgraded its growth forecast for 2019 over concerns that the protracted nature of the trade war would likely weigh on the economy for the foreseeable future.
The divergence between manufacturing and the services sector has continued this morning after the latest Spanish services PMI for June improved to 53.7 from 52.8. In Italy we also saw an improvement to 50.5, while France came in at 52.9. German services PMI also improved coming in at 55.8.
The euro has remained under pressure this morning, after slipping back in the wake of the announcement that Christine Lagarde, head of the IMF was being nominated as President of the European Central Bank. This is a controversial choice at a time when central bank independence is increasingly being questioned.
In Europe the Italian government is actively looking to push out the current incumbent of the Bank of Italy, Ignazio Visco, while President Trump is openly hostile towards the Federal Reserve chairman Jay Powell.
If events play out as expected in Europe, markets will have to contend with two ex-politicians at the top of the European Central Bank, with Luis de Guindos ex Spanish finance minister a deputy President, calling into question the political impartiality of what is probably the most important position in Europe.
There is also the small matter that Christine Lagarde is not a central banker by trade, with limited experience of central banking and the inner workings of financial markets. Seeing how Mario Draghi navigated the last eight years there are significant concerns about her lack of banking, and above all central banking experience, for a role that is highly technical, as well as her ability to do the job in a non-political manner, given the IMF’s role in the Greek bailout where the IMF broke its own rules on debt sustainability.
What is apparent is that she will probably lean to the dovish side, but at a time when the central bank is running low on monetary policy levers to pull, having such an inexperienced and under-qualified person in such a high profile role, doesn’t inspire confidence in what is likely to be a crucial area in the coming months and years. It also calls in to question the ECB’s independence under the terms of the European treaties.
On the companies front the UK’s second biggest supermarket Sainsbury (LON:SBRY) announced Q1 numbers that were worse than expected. We saw a big decline of 3.1% in general merchandising and 4.5% in clothing, coming in much worse than markets were expecting.
Market expectations were for a decline of 1.5% in general merchandise and 2.5% in clothing, while food was expected to fall by about 1%.
Grocery sales, which make up the bulk of the business did come in slightly better, with a decline of 0.5%, but there is no escaping the fact that these numbers are disappointing, and raise a number of awkward questions for senior management and the stewardship of CEO Mike Coupe.
On line estate agent Purplebricks (LON:PURP) also announced its full year results against backdrop of a share price plunge brought about by a slowdown in its key markets of the UK, Australia, and the US. These overambitious expansion plans saw the company pull out of Australia earlier this year, and this morning the company also called time on its US operation, after posting a full year pre-tax loss of £56m.
Most of these losses were driven by these overseas operations while its UK operations made a profit of £5.3m.
JD Sports (LON:JD), one of the best performers in the FTSE100 year to date, this morning announced that it was confident of meeting its full year expectations, helping push the share price back close to its all-time highs posted earlier this year. It would appear that despite a tough retail environment management have stumbled on a formula that is expected to more than triple revenues from the £1.8bn in 2016, to an expectation of £5.6bn in the upcoming financial year.
Antivirus company Sophos is also on the up this morning on the back of the announcement overnight that Broadcom (NASDAQ:AVGO) is looking to buy Symantec, as M&A speculation gives the whole sector a lift.
Tesla shares have also shot up in the premarket after announcing it had a record quarter in Q2, delivering 95,200 cars, easily outpacing its previous record of 90,700 set at the end of last year, and well above the previous 63k in Q1. If it continues to generate output at this rate it could well get a lot closer to its annual target of 400k deliveries in a fiscal year, than was originally thought back in April.
Dow Jones is expected to open 40 points higher at 26,826
S&P500 is expected to open 6 points higher at 2,979.5
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