David Madden | Aug 21, 2019 12:45
Equity markets in Europe are higher as traders look ahead to the Fed minutes at 7pm (UK time). Last month, the Fed lowered interest rates, and the central bank made it clear that it was an adjustment to monetary policy, rather than the beginning of a cycle of lowering interest rates. Shortly after that interest rate decision, US-China trade tension increased, and so did that chatter the Fed will cut rates next month. Dealers are speculating that this evening’s update will be dovish, and that is pushing stocks higher.
Today’s update will give us an insight into the central bank’s rational for the rate cut last month. Things have changed since the July Fed meeting, so the update might not provide that much insight. Political uncertainty in Italy and negative growth in Germany are relatively new to the mix, and they add weight to the argument that the ECB should loosening monetary policy next month.
Fiat Chrysler (LON:0QXR) and Renault (LON:0NQF) shares are higher this morning as merger talks between the two sides are doing the rounds. In June, the tie-up talks collapsed as the French government, who own a 15% stake in Renault, blocked the deal. Previously, the administration in Paris expressed concerns about protecting operations in France, and seeing as it is the largest shareholder in the carmaker, they will make their voice heard.
The auto sector is under pressure from the slowdown in China, global trade tensions, and the possibility of a US-EU trade spat is looming over the sector too, so it is no wonder Fiat Chrysler and Renault (PA:RENA) are considering teaming up to strengthen their position to weather the storm.
OneSavings Bank (LON:OSBO) shares are in the red this morning after the group cautioned that it is tightening its lending criteria because of the ‘macroeconomic outlook’, and the firm said the change will especially come into play in ‘bridging and residential development finance’. This suggests the bank will be issuing fewer loans, and keep in mind the net interest margin cooled to 278 basis points from 301 basis points, so profitability from lending is likely to be hit. By-and-large, the bank had a good first-half as underlying pre-tax profit increased by 6% to £96.9, and the loan book grew by 10% to £9.9 billion, but the guarded outlook weighed on the stock. The share price has been in a downtrend for four months, and a break below the 320p region, might bring 300p into play.
GBP/USD is in the red as concerns about a no-deal Brexit are playing on traders’ minds. The UK swung to a budget surplus of £2 billion in July, which was a sharp turnaround from the deficit of £5.67 billion in June, the news had little impact on the pound.
Target (NYSE:TGT) will be in focus today as the group will release its second-quarter figures. Even though there has been talk about a recession in the US, the unemployment rate is low, earnings are outstripping inflation, and the latest retail sales figures have been strong, but the consumer confidence has slipped a little. The first-quarter figures from Target were well received as total revenue jumped by 5% to $17.63 billion, which exceeded forecasts. Online revenue jumped by 42%, which is encouraging to see as it highlights their commitment to the changing consumer environment.
We are expecting the Dow Jones to open 130 points higher at 26,092 and we are calling the S&P 500 up 17 points at 2,917.
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Written By: David Madden
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