European equity markets have been rocked by the rising trade tensions between the US and China. The fact the Chinese central bank allowed the yuan to fall through the 7 mark against the US dollar without intervening is a clear indication that Beijing means business. The softness in the Chinese currency should assist domestic exporters, but it could be construed as a dig at the Trump administration, as President Trump is quick to call out currency manipulation. The Chinese government has called on state buyers to stop purchasing US agricultural goods, and that is adding to the tensions between the two sides. There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time. Overnight, the Chinese services PMI reading slipped to 51.6 in July, from 52 in June, and the subdued reading highlights the cooling of the second-largest economy in the world. Mining companies like Antofagasta (LON:ANTO), Glencore (LON:GLEN) and Rio Tinto (LON:RIO) are firmly in the red this morning as copper and iron ore prices have slumped over fears that China’s appetite for mineral will diminish.
HSBC shares are a little lower this morning as John Flint, the CEO, announced he stepped down, and Noel Quinn, the head of global commercial banking, will act as interim CEO. The announcement was made in relation to the ‘challenging global environment’ and that has chipped away at investor confidence. The bank revealed a 15.8% jump in first-half pre-tax profit. The group’s US business continues to hang over the bank, and it no longer expects to achieve it profit target for the division. The bank earns the bulk of its revenue in Asia, and the US-China trade stand-off is weighing on sentiment too.
Quilter confirmed it had an operating loss of £40 million in the first-half, and the group is selling its life assurance business for £425 million. The motivation behind the asset disposal is to focus on the core business. Assets under administration increased by 8%, and the group wants to focus more on the wealth management business.
Senior revealed a 16% drop in first-half profit as the aerospace supplier has been hit hard by the turmoil surrounding Boeing’s 737 Max aircraft. The group previously warned that margins would be hit, but the group reiterated its cautious outlook today. The CEO, David Squires, warned about ‘ongoing uncertainty’ in relation to the ‘current geopolitical and macroeconomic backdrop’.
GBP/USD was given a little lift on the back of the UK services data, but political uncertainty still looms over the pound. The services PMI report in July was 51.4, which was a decent improvement on the previous 50.2 reading.
EUR/USD has been helped by the softer US dollar. Eurozone services PMI in July was 53.2, and that was a slight dip on the month, but the worries about US dollar trumped the mediocre services figures.
Marriott International will be in focus today as the group will release its second-quarter figures after the closing bell. In May, the group announced a respectable set of first-quarter figures, although costs did creep higher, and traders will be keeping an eye on the expenses in today’s update. The group registered a faster revenue growth rate outside of North America. The firm anticipates second-quarter EPS to be between $1.52 and $1.58, and the full-year outlook will also be in focus.
We are expecting the Dow Jones to open 360 points lower at 26,125 and we are calling the S&P 500 down 42 points at 2,889.
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