Growth Concerns Plus U.S.-China Trade Woes Weigh On Stocks

Growth Concerns Plus U.S.-China Trade Woes Weigh On Stocks

CMC Markets  | Oct 31, 2019 16:43

Europe

Equity markets in Europe are in the red as worries about the US-China trade situation has prompted traders to drop stocks. Beijing have expressed concerns about agreeing terms of a trade deal with Mr Trump as some people in the Chinese government deem him to be unpredictable. This could easily turn out to be a poly be Beijing to try and gain leverage over the US, but for now dealers are content to trim their equity positions. Overnight, the Chinese manufacturing PMI report came in at 49.3, which shows the industry is still in contraction. The disappointing reading has out pressure on oil and gas, as well as mining stocks – which is hurting the FTSE 100.

Lloyds (LON:LLOY) shares are lower this afternoon after the bank registered a third-quarter statutory loss after tax of £238 million. Keep in mind, in the same period last year, the group announced a profit in excess of £1.4 billion. In the third-quarter, the group revealed a £1.8 billion write down in relation to the mis-selling of payment protection insurance (PPI). The sum was right at the top end of the previous guidance, so I was painful for shareholders. Net interest margin in the quarter dipped by 0.05% to 2.88%, which gives slight cause for concern as costs ticked up too. The uncertainty in relation to Brexit has dampened consumer as well as business activity so Lloyds (LON:LLOY) might struggle in the lending department, especially in light of the squeezed profit margins.

Royal Dutch Shell (LON:RDSa) confirmed that net profit dropped by 15% when compared with the same quarter last year. Weaker oil prices were blamed for the drop in earnings. Average daily production has been 3.6 million barrels of oil equivalent per day, which was similar to the figure last year, but the company is at the mercy of the underlying oil market. The CEO, Ben Van Beurden, cautioned about ‘uncertainty’ in the global economy which added to the downbeat sentiment. The share price is lower today.

The Fiat Chrysler (LON:0QXR) – Peugeot SA (LON:0NQ9)story moved along quickly. Yesterday it was announced the two companies were seizing each other up, and now both companies confirmed they are considering merging. There has been mixed reactions to the news as Fiat Chrysler shares have rallied, while Peugeot shares have sold-off. Seeing as Fait Chrysler shareholders are in line for a cash payout relating to the deal in excess of €5.5 billion, there is a view that Peugeot investors have been rear-ended by the deal.

US

The S&P 500 has retreated from its record-close last night as dealers are mildly worried about China’s reluctance to push ahead with the trade deal. The comments from Beijing provided a nice excuse to reduce exposure to stocks. The absence of hostile language has equated to only a small retreat. The latest economic announcements from the US were disappointing as the core PCE reading cooled to 1.7% from 1.8% The Chicago PMI report dropped to 43.2 – the lowest reading since December 2015.

Facebook Inc (NASDAQ:FB) revealed respectable third-quarter figures last night. EPS were $2.12, which topped the $1.91 forecast. Compared with a year ago, quarterly revenue jumped by 29% to $17.65 billion, which topped the $17.37 billion forecast. The group continues to draw in new advertising revenue so it’s no wonder the likes of WPP (LON:WPP) have found trading tough in recent years. The social media giant confirmed that average revenue per user in the quarter was $7.26, while the consensus estimate was $7.09. Despite all the controversies in recent years, the group can still draw in users as well as revenue, hence why the stock is higher today.

Apple (NASDAQ:AAPL) shares are posting modest gains thanks to solid fourth-quarter figures. Group revenue ticked up to $64 billion, topping the $62.99 billion forecast. Revenue from iPhones sales was $33.36 billion, while the consensus estimate was $32.42 billion. The services business saw sales rise by 18%, while the wearable division posted a 54% jump in revenue. It is encouraging to see that other aspects of the business are gaining traction with clients as branching out from iPhones will benefit the group in the long-run.

FX

EUR/USD is in the red on the back of mixed inflation data from the eurozone. CPI in the euro-area dipped to 0.7%, from 0.8%. The slide in the cost of living points to falling demand. It is worth noting the core reading ticked up to 1.1% from 1%, so underlying demand appears to be weak, but on the rise. Quarterly growth was 0.2%, which topped the 0.1% forecast.

GBP/USD has been given a lift as opinion polls have put the Conservative Party in the lead. The view in the market is the Tories are more pro-business, which is why the pound is in demand. Adding to that, traders believe a Boris Johnson led government would have a better chance of delivering Brexit seeing as his deal was supported in principal at Westminster.

Commodities

Gold has been given a lift by the slide in stocks as traders as seeking out assets that are deemed to be lower risk. Dealers’ risk-off attitude has nudged gold higher, and to a lesser extent, the softness in the greenback, is boosting gold too. If the yellow metal clears the $1,520 area it might be retest the $1,535 region.

Concerns about the health of the global manufacturing sector has put pressure on the oil market. The Chinese manufacturing sector remains in contraction territory, and the Chicago PMI reading slipped to nearly a four year low. Dealers are worried that demand for the energy will decline in light of the poor manufacturing updates in the past 24 hours.

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "

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