Europe
European markets have finished the week on a disappointing note, though they have managed to close the week higher for the second week in succession. While flash PMI data for France and Germany for July was slightly better than expected, it was still down on the previous month's readings.
The FTSE 100 however has continued to outperform, managing its fifth successive weekly advance and closing at its highest weekly level in a year, on the basis that we could well get further stimulus from the Bank of England when the bank meets in less than two weeks.
The FTSE 250 has seen a slightly more disappointing end to the week, slipping back after this morning’s weak data, but has nonetheless managed to finish higher for the second week in a row as it looks to gain a foothold above the 17,000 level, and within 3% of its June pre-Brexit peaks.
On a sector by sector basis, the worst performers one month on from last month’s vote are house builders, banks and retailers, with Crest Nicholson (LON:CRST), Aldermore (LON:ALD), Virgin Money (LON:VM), Sports Direct (LON:SPD) and DFS Furniture (LON:DFSD) the worst performers, all down over 30%.
On the positive side, it’s been mining stocks as well as technology companies like Sophos Group (LON:SOPH) and Micro Focus International (LON:MCRO) along with manufacturers Weir Group (LON:WEIR), Croda International (LON:CRDA) and defence contractor Cobham (LON:COB).
A disappointing set of flash UK PMIs saw the pound sink back and deliver another helping hand to the UK benchmark, as major blue chips look at the potential for a US dollar earnings boost.
These disappointing PMIs have once again hit the house builders, with Berkeley Group (LON:BKGH), Taylor Wimpey (LON:TW) and Barratt Developments (LON:BDEV) all sliding back in expectation of another disappointing construction PMI in a few days.
Shares in Marks and Spencer (LON:MKS) are also lacking spark after being downgraded by Barclays, while banks are also under pressure again after this morning’s weak flash PMIs increased the prospects of another loosening of monetary policy when the Bank of England meets next at the beginning of August.
Amongst the best performers today has been construction company CRH (LON:CRH) who have lifted their earnings guidance for the first half of this year by €100m, sending the shares to new record highs.
Vodafone (LON:VOD) is also doing well after its latest Q1 earnings came in slightly ahead of low expectations, despite a decline of 3.2% in UK revenues. Overseas revenue from its Asia Pacific and Middle East business helped offset these declines, and the company has maintained its full year guidance.
US
US markets look set to finish a positive and record breaking week in a rather uninspiring fashion ahead of next week’s July Federal Reserve rate decision.
This week’s earnings announcements have been a mixed bag, with banks performing better than expected, but on the other hand disappointing ones for airlines in general, due to concerns about too high capacity, lower airfares, terrorism concerns and air traffic disruption. However, today’s latest Q2 numbers for American Airlines (NASDAQ:AAL) were slightly better than markets had been expecting.
The bar had been set earlier this week by Southwest Airlines (NYSE:LUV) numbers which saw their shares drop 11% after the company downgraded its Q3 outlook. It would appear that the scale of American Airlines' operation allowed it to cut costs by 3.3%, which along with a 20% reduction in fuel costs saw profits come in better than expected. However, its net income numbers painted a rather different picture, with a 44% fall due to provisions for income tax. Total operating revenue also declined 4.3%.
Yahoo! (NASDAQ:YHOO) shares are also in focus on reports that it is in talks with Verizon (NYSE:VZ) with respect to being taken over for $5bn. While it is still early days, indications would appear to suggest that patent and intellectual property aren’t being included in the talks, rather begging the question as to why bother, given that is where most of the value in the company probably is.
FX
The pound has had another disappointing day, sliding back sharply after the latest flash PMI data for July showed a sharp contraction in the services sector from 52.3 in May to 47.4 in July, as Q3 got off to a disappointing start with businesses digesting the uncertainty in the wake of the June Brexit vote.
While the manufacturing sector also declined, the sharp decline in services has raised the prospect that the Bank of England could cut rates further at its August policy meeting, though it is also important to remember that this number is likely to get revised, and contrasts sharply with a recent Bank of England survey earlier this week that suggested that there was “no clear evidence” of a slowdown in economic activity.
The Canadian dollar got a short lived boost after June retail sales excluding autos rose by 0.9%, well above expectations of 0.2%, while the latest CPI numbers also nudged higher, coming in at 1.5%. However, a better-than-expected US manufacturing PMI for July saw the US dollar sweep all before it, making the greenback the best performer on the day.
Commodities
Oil prices have finished the week sharply lower as a combination of a stronger US dollar and higher-for-longer inventory levels contrive to keep supplies much higher in the longer term than markets had originally anticipated. The inability to sustain a move above $50 a barrel along with subsequently weaker rebounds has seen oil prices slide below their previous July lows and potentially open up a move lower towards the low $40s last seen back in early May.
Gold prices have also slid back ahead of next week's Fed meeting as the recent run of US data continues to come in slightly better than expected.
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