Equities
European markets were lower on Tuesday amid a downgrade to economic growth from the IMF and lingering concerns over political turmoil in neighbouring Turkey. The market’s focus has shifted from hopes of central bank easing to company earnings and geopolitics.
The FTSE 100 bucked the trend of lower prices with Royal Mail (LON:RMG) amongst top risers after a positive sales update.
Royal Mail shares brushed off another decline in letter volumes after the delivery company reported a rise in parcel volumes. Royal Mail appears to be getting the mix of cost reductions and competitive pricing right to deliver more parcels in the UK. The bigger concern maybe the tail-off in demand for its international shipping from the likes of China.
The Turkish lira has dropped sharply as the government continues to purge vast swathes of the establishment, risking a level of destabilisation that could seriously derail economic growth. The Turkey Education Ministry reportedly suspended 15,200 staff whilst 1,577 university deans have been asked to resign.
The IMF has cut its global growth forecasts, saying Brexit has put a “spanner in the works” of the global recovery. UK growth was lowered by 0.3% to 1.7% for 2016 and by 0.9% to 1.3% for 2017. The IMF predicts the referendum will damage short-term growth prospects via lower confidence and investment but has factored in favourable trade terms into its forecasts.
The uncertainty amongst investors, despite the post-Brexit rise in global shares was evident in the latest German ZEW survey. The ZEW’s business confidence for the current situation and future economic sentiment both fell well beneath expectations in July.
US stocks opened lower after disappointing technology company earnings overnight that saw no update on a sale at Yahoo (NASDAQ:YHOO) and weaker subscriber numbers from Netflix (NASDAQ:NFLX). Better than expected results from IBM (NYSE:IBM), Goldman Sachs (NYSE:GS) and Johnson and Johnson (NYSE:JNJ) have stemmed the losses. The Dow Jones Industrial Average was seeing some profit-taking after a seven-day winning streak.
FX
The British pound dipped significantly on Tuesday despite data showing stronger UK inflation. CPI rose 0.5% y/y in June, higher than the 0.4% expected and the 0.3% reported in May. The muted reaction to the higher than expected rise in UK inflation suggests the rise in sterling is losing momentum.
Decent US housing data and a move into some of the safer areas of the FX market saw the US dollar index rise above 97 to its highest in four months.
The Australian dollar came under pressure after minutes from the latest Reserve Bank of Australia meeting left the door open to a rate cut. The RBA said it will be watching inflation and house price data in order to decide whether action would be necessary in August.
Commodities
Oil prices edged slightly lower amid a diminished global demand outlook after the latest IMF growth downgrade and a rise in the US dollar. Investors a eyeing the US inventories data for signs that the rise in the rig count is adding to production.
A modest move from risky assets into safe havens saw the price of gold rise above $1330 per oz
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