As we come to the end of the month and the quarter, equity markets have settled down a touch to trade rather mixed. The FTSE100 has slipped back a touch after a remarkable two day rebound which appears to have left banking stocks behind.
It is here that the soft underbelly of the European economy remains, with financials under pressure again after the US subsidiaries of Deutsche Bank (DE:DBKGn) and Santander (MC:SAN) failed the latest Federal Reserve stress tests for the second year in succession.
Italian banks have also come under selling pressure once again after German Chancellor Angela Merkel ruled out the prospect of allowing the Italian government to pump tens of millions of euros into the banking system to help stabilise it. Under current EU state aid rules any attempts to help banks must involve a bail-in process that doesn’t involve using tax payer’s money. Italian PM Matteo Renzi has tried to argue that the Brexit uncertainty has destabilised Italy’s already fragile banks. The reality is the problems of Italy’s banks predate last week’s Brexit vote, and he knows it.
Amongst the biggest fallers Royal Bank of Scotland (LON:RBS) and Barclays (LON:BARC) continue to remain under pressure along with UK house builders Taylor Wimpey (LON:TW), Berkeley Group (LON:BKGH) and Barratt Developments (LON:BDEV).
On the plus side mining stocks are holding up quite well despite reports that Chinese authorities could look to let the yuan weaken to 6.80 in an attempt to cushion the effects of a slowing economy. While commodity prices appear to be holding up well and may well have found a base there is a concern about a slowing global economy, and this has been magnified by events of the last week or so.
This suggests that further currency weakness is likely to be a recurring theme over the course of the next quarter or so.
Next week we will get to see the latest manufacturing and services PMI numbers for June which could well see further weakness in both sectors.
While most US banks passed their stress tests last night questions marks were raised about Morgan Stanley (NYSE:MS) who were told to come back with a fresh plan by the end of the year.
On the data front attention will be focussed on the latest weekly jobless claims numbers which are expected to come in at 267k, up from 259k last week, while the latest June Chicago manufacturing PMI is expected to improve to 51, after a disappointing 49.3 in May.
There have been signs that some of the US manufacturing sector is starting to improve in the last month or so but activity in some areas continues to remain weak, while attention is now likely set to shift to next week’s jobs report.
The Dow Jones is expected to open 54 points higher at 17,748
The S&P500 is expected to open 6 points higher at 2,076
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