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Midday European catch-up
After a choppy morning, European stock markets are looking becalmed, as investors look to Wall Street for inspiration.
Here’s the state of play, after the initiall recovery from yesterday’s losses fizzled out.
-
The UK FTSE 100: up 5 points or 0.06% at 8013 points
-
Germany’s DAX: up 6 points or 0.04% at 17,345 points
-
France’s CAC: down 19 points or 0.27% at 7,129 points
-
Spain’s IBEX: down 41 points or 0.4% at 10,382 points
-
Italy’s FTSE MIB: down 30 points or 0.1% at 31,266 points
We’re still expecting Wall Street to open higher; the futures market now has the Dow Jones industrial average up 0.8% or so.
The pound remains at its lowest level in over a month against the US dollar, at $1.2698.
Luke Bartholomew, deputy chief economist at abrdn, says the current market volatility is being driven by three macroeconomic drivers.
First, weak US data reigniting recession fears. Last week’s labour market report was soft across the board, with unemployment now rising in a manner historically consistent with a recession. However, the services ISM rebounded to 51.4 in July from 48.8 previously and the PMI equivalent was even firmer at 55. And the Senior Loan Officers Survey pointed to stabilising credit conditions, although without any loosening from the sizeable tightening over the last few years. More broadly, relatively few economic data are consistent with a recession. Consumer spending and business investment were both solid through Q2, and the Atlanta Fed nowcast is tracking a 2.5% gain in Q3 GDP. Indeed, the NBER recession indictors are signalling few signs of alarm. On balance, then, while we take the deterioration in the US labour market very seriously, we don’t think the economy is in a recession.
The second, and related, driver is the sense that the Fed might be falling behind the curve in responding to weak US data. If the Fed had been meeting this week rather than last, it may well have cut rates. But this does not mean that an unscheduled meeting to announce a rate cut now is likely. In fact, such a move risks heightening volatility by creating a perception of panic. Instead, policymakers will probably try to use verbal interventions to reassure markets. For example, Chicago Fed President Austan Goolsbee was very much looking to calm nerves in comments yesterday, arguing that the employment data was just “one report”, and that the economy does not look to be in recession. We expect similar messages from other Fed speakers in due course. But what is important to stress is that the path to a soft-landing runs through rate cuts. There is a vital distinction between rate cuts that are delivered pre-emptively to stop a slowdown, and reactive rate cuts that come in response to a slowdown. The market needs reassurance the Fed is ready to deliver pre-emptive easing and will not wait until the economy is clearly in recession before cutting.
For now, we continue to forecast a 25bps cut in September, along with a clear path towards further easing this year and next. But another weak labour market report or little let-up in market stress could easily tip the Fed towards delivering a more rapid cutting cycle. We expect the Bank of England and European Central Bank to also extend their rate cutting cycles later this year, although most recent market pricing probably exaggerates the speed and scale of those cuts.
The third driver of volatility is the unwind of the yen carry trade. The Bank of Japan (BoJ) announced more monetary tightening than expected last week, causing a sharp appreciation in the yen. As the yen has been a preferred funding currency for the global carry trade, this appreciation caused a significant positioning unwind, begetting a positive feedback loop of yen appreciation. The BoJ will probably be somewhat chastened by the size of the moves in equity and currency markets. Given that the progress on underlying inflation in Japan is far from complete, it is not obvious that Japan needs a material tightening of financial conditions. So, while the unwind of the carry trade might have further to run, and we expect further tightening from the BoJ, policy rhetoric may now soften and the next hike could be delayed until much later into the year.”:
Uber has posted earnings per share of 47 cents for the second quarter of this year, beating analyst estimates of 31 cents.
","elementId":"d1d8230f-a36c-4dab-9d28-f99b96796715","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Revenues grew 16% to $10.7bn, ahead of the $10.57bn forecast.
","elementId":"b0ba3831-e78d-41d4-9631-7cbf56d9f70d","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"And net income jumped 158% in April-June, from $394m in Q2 2023 to $1.015bn.
","elementId":"bc63592f-6674-4bac-ae82-23ac09ef23ce","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Despite concerns about a US recession, Uber executives sound rather upbeat.
","elementId":"75c1b299-e3bb-4142-b5a5-e59c4835e43d","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Uber’s CEO, Dara Khosrowshahi, says:
","elementId":"b8588f4a-01c1-4bb1-8171-1f05bfa6eac1","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"93f5262a-f79b-4f2a-958f-34b2e639c441","_type":"model.dotcomrendering.pageElements.TweetBlockElement","source":"Twitter","id":"1820780455777476915","elementId":"38d1b0ff-c94c-447f-98c2-61582fda71a0","hasMedia":false,"role":"inline","url":"https://twitter.com/Quartr_App/status/1820780455777476915","isThirdPartyTracking":false,"html":"“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.
\nThe Uber consumer has never been stronger--more people are using the platform, and more frequently, than ever before--while drivers and couriers earned a new all-time high of $17.9 billion over the quarter.”
\n
","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"$UBER Q2 2024
— Quartr (@Quartr_App) August 6, 2024
“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.” – @dkhos
MAPCs +14%
Gross Bookings +19%
Trips +21%
Revenue +16%
*Mobility +25%
*Delivery +8%
*Freight -0.5%
EBIT… pic.twitter.com/qnjnJsB73U
Shares in Uber have jumped 6% in pre-market trading.
","elementId":"aa1d0f59-ddda-4f86-9cc6-c7f6d36584a8"],"attributes":"pinned":false,"keyEvent":true,"summary":false,"blockCreatedOn":1722943184000,"blockCreatedOnDisplay":"07.19 EDT","blockLastUpdated":1722943805000,"blockLastUpdatedDisplay":"07.30 EDT","blockFirstPublished":1722943662000,"blockFirstPublishedDisplay":"07.27 EDT","blockFirstPublishedDisplayNoTimezone":"07.27","title":"Uber beats forecasts, as growth engine hums away","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b203308f089e412f0f2d57","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"After a choppy morning, European stock markets are looking becalmed, as investors look to Wall Street for inspiration.
","elementId":"8bf3f7dd-9384-434d-b075-d08d8cce7e84","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Here’s the state of play, after the initiall recovery from yesterday’s losses fizzled out.
","elementId":"6e3d682e-167c-4060-8423-043699f90f9c","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"- \n
- \n
The UK FTSE 100: up 5 points or 0.06% at 8013 points
\n - \n
Germany’s DAX: up 6 points or 0.04% at 17,345 points
\n - \n
France’s CAC: down 19 points or 0.27% at 7,129 points
\n - \n
Spain’s IBEX: down 41 points or 0.4% at 10,382 points
\n - \n
Italy’s FTSE MIB: down 30 points or 0.1% at 31,266 points
\n
We’re still expecting Wall Street to open higher; the futures market now has the Dow Jones industrial average up 0.8% or so.
","elementId":"8e411ec8-a77a-4256-bcf2-68ab873dc85f","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The pound remains at its lowest level in over a month against the US dollar, at $1.2698.
","elementId":"7667908e-67a3-4d80-af00-5f0283718ba6","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Luke Bartholomew, deputy chief economist at abrdn, says the current market volatility is being driven by three macroeconomic drivers.
","elementId":"4038e253-5750-474f-b508-70e1db46761d","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"18b30b4c-53f4-4ae3-b640-71b244bd7919"],"attributes":"pinned":true,"keyEvent":true,"summary":false,"blockCreatedOn":1722942256000,"blockCreatedOnDisplay":"07.04 EDT","blockLastUpdated":1722942690000,"blockLastUpdatedDisplay":"07.11 EDT","blockFirstPublished":1722942690000,"blockFirstPublishedDisplay":"07.11 EDT","blockFirstPublishedDisplayNoTimezone":"07.11","title":"Midday European catch-up","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b1edd28f08df34fd789ea6","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"First, weak US data reigniting recession fears. Last week’s labour market report was soft across the board, with unemployment now rising in a manner historically consistent with a recession. However, the services ISM rebounded to 51.4 in July from 48.8 previously and the PMI equivalent was even firmer at 55. And the Senior Loan Officers Survey pointed to stabilising credit conditions, although without any loosening from the sizeable tightening over the last few years. More broadly, relatively few economic data are consistent with a recession. Consumer spending and business investment were both solid through Q2, and the Atlanta Fed nowcast is tracking a 2.5% gain in Q3 GDP. Indeed, the NBER recession indictors are signalling few signs of alarm. On balance, then, while we take the deterioration in the US labour market very seriously, we don’t think the economy is in a recession.
\nThe second, and related, driver is the sense that the Fed might be falling behind the curve in responding to weak US data. If the Fed had been meeting this week rather than last, it may well have cut rates. But this does not mean that an unscheduled meeting to announce a rate cut now is likely. In fact, such a move risks heightening volatility by creating a perception of panic. Instead, policymakers will probably try to use verbal interventions to reassure markets. For example, Chicago Fed President Austan Goolsbee was very much looking to calm nerves in comments yesterday, arguing that the employment data was just “one report”, and that the economy does not look to be in recession. We expect similar messages from other Fed speakers in due course. But what is important to stress is that the path to a soft-landing runs through rate cuts. There is a vital distinction between rate cuts that are delivered pre-emptively to stop a slowdown, and reactive rate cuts that come in response to a slowdown. The market needs reassurance the Fed is ready to deliver pre-emptive easing and will not wait until the economy is clearly in recession before cutting.
\nFor now, we continue to forecast a 25bps cut in September, along with a clear path towards further easing this year and next. But another weak labour market report or little let-up in market stress could easily tip the Fed towards delivering a more rapid cutting cycle. We expect the Bank of England and European Central Bank to also extend their rate cutting cycles later this year, although most recent market pricing probably exaggerates the speed and scale of those cuts.
\nThe third driver of volatility is the unwind of the yen carry trade. The Bank of Japan (BoJ) announced more monetary tightening than expected last week, causing a sharp appreciation in the yen. As the yen has been a preferred funding currency for the global carry trade, this appreciation caused a significant positioning unwind, begetting a positive feedback loop of yen appreciation. The BoJ will probably be somewhat chastened by the size of the moves in equity and currency markets. Given that the progress on underlying inflation in Japan is far from complete, it is not obvious that Japan needs a material tightening of financial conditions. So, while the unwind of the carry trade might have further to run, and we expect further tightening from the BoJ, policy rhetoric may now soften and the next hike could be delayed until much later into the year.”:
\n
So much for turnaround Tuesday!
","elementId":"1f3abe9a-fd89-41a9-90d4-4776f6020d69","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"After a positive start, European stock markets have fallen into the red again.
","elementId":"5a0d5511-1932-418d-82c2-3fdc0b9342c2","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The feeling of optimism following the sharp rally in Tokyo overnight has not lasted for long.
","elementId":"24337217-8d99-4809-bf02-a235313408cf","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"In London, the UK’s FTSE 100 share index is down 35 points, or 0.45%, at 7972 points – so still higher than its low point yesterday.
","elementId":"c589b4e4-58b8-403a-a8cd-b25b2a3f4706","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Germany’s DAX has lost all its earlier gains, now down 0.3%, while France’s CAC has lost another 0.6%.
","elementId":"acad2e91-f755-48f1-975f-fbb32e3d4339","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Reminder, that follows a strong recovery in Asia after Monday’s rout, with Japan’s Nikkei surging around 10% – its biggest one-day jump since the financial crisis of 2008.
","elementId":"baebb675-996a-4dbc-9aa6-34e6c07b3fa8","_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","prefix":"Related: ","text":"Japanese stocks soar after massive sell-off shook global markets","elementId":"7f011d79-265e-4766-9d7f-01746ef47f7d","role":"thumbnail","url":"https://www.theguardian.com/world/article/2024/aug/06/japanese-stock-market-nikkei-225-index-rebound-trading"],"attributes":"pinned":false,"keyEvent":true,"summary":false,"blockCreatedOn":1722936786000,"blockCreatedOnDisplay":"05.33 EDT","blockLastUpdated":1722938354000,"blockLastUpdatedDisplay":"05.59 EDT","blockFirstPublished":1722937141000,"blockFirstPublishedDisplay":"05.39 EDT","blockFirstPublishedDisplayNoTimezone":"05.39","title":"European markets back in the red","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b1ee778f08aadc24f5d2d4","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"In less encouraging news, eurozone retail sales have fallen again.
","elementId":"8b2d0e79-cfed-4b82-a39a-ad31c1ddb8b5","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Reail sales in the euro area dropped by 0.3% in June, new data shows, missing forecasts for a 0.2% rise.
","elementId":"e6be334a-88ef-4d0a-bb10-6d72b22930cd","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Analysts at ING say this is “more sluggish news about the eurozone economy” as consumers postponed the retail recovery again.
","elementId":"626ea6d1-e563-45c6-9c9b-ca75ac3fcbac","_type":"model.dotcomrendering.pageElements.TweetBlockElement","source":"Twitter","id":"1820747036653769164","elementId":"01d80ddd-5ae7-4f9a-ad7d-91652a0145b5","hasMedia":false,"role":"inline","url":"https://twitter.com/CavaggioniMario/status/1820747036653769164","isThirdPartyTracking":false,"html":"\n\n"],"attributes":"pinned":false,"keyEvent":true,"summary":false,"blockCreatedOn":1722936951000,"blockCreatedOnDisplay":"05.35 EDT","blockLastUpdated":1722941429000,"blockLastUpdatedDisplay":"06.50 EDT","blockFirstPublished":1722937031000,"blockFirstPublishedDisplay":"05.37 EDT","blockFirstPublishedDisplayNoTimezone":"05.37","title":"Eurozone retail sales fall","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b1df828f084f763d10d6cf","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Eurozone June retail sales m/m -0.3% (est -0.1% last +0.1%)
— Mario Cavaggioni (@CavaggioniMario) August 6, 2024
Weakness persist in Europe... pic.twitter.com/vrx0tOnP8z
Newsflash: growth accelerated in the UK construction sector last month, at the fastest pace in 26 months.
","elementId":"7957bb3e-9f4c-442e-b25a-f9c09b3e7caa","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Building firms reported “much faster increases” in both activity and new orders in July, according to the latest poll of purchasing managers by S&P Global.
","elementId":"fa0624bf-a765-46f5-b99b-eda062e72bb6","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Thsi lifted the Construction Purchasing Managers’ Index up to 55.3 in July from 52.2 in June, showing faster growth (50 points = stagnation).
","elementId":"e90f9c9c-6270-48c2-9460-bffcd0f13aad","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"That’s the fastest rate of expansion since May 2022.
","elementId":"87010382-5d2d-469d-b5c2-c8bf27fd0447","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"S&P Global reports that all three categories of construction grew last month – civil engineering expanded fastest, followed by commercial work and then housebuilding.
","elementId":"ca58937f-0739-4c2d-8f79-3351fa17db0c","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"A pick-up in housebuilding should be welcome news for the new government, as it aims to build 1.5m new homes this parliament.
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chart showing the UK construction PMI","credit":"Photograph: S&P Global","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Andrew Harker, economics director at S&P Global Market Intelligence, says:
","elementId":"a7e207ff-014e-4251-952b-126d45803d1e","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"b2421eb6-5321-41bd-88c2-c146a0b04a9f"],"attributes":"pinned":false,"keyEvent":true,"summary":false,"blockCreatedOn":1722933122000,"blockCreatedOnDisplay":"04.32 EDT","blockLastUpdated":1722934278000,"blockLastUpdatedDisplay":"04.51 EDT","blockFirstPublished":1722933538000,"blockFirstPublishedDisplay":"04.38 EDT","blockFirstPublishedDisplayNoTimezone":"04.38","title":"UK construction activity increases at fastest pace in 26 months","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b1c7e18f08afaf073aaa68","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"“The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.
\nThe strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”
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Thames, Yorkshire and Northumbrian Water will be fined a record £168m between them for a “catalogue of failure” over illegal sewage discharges into rivers and the sea after the industry regulator’s biggest ever investigation.
","elementId":"0918e763-5961-4a53-a584-3aac41d18438","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The water regulator for England and Wales, Ofwat, has proposed penalties of £104m for Thames, £47m for Yorkshire and £17m for Northumbrian for failing to manage their wastewater treatment works and networks, including their operation of storm overflows. It said it was the first of more crackdowns to come.
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","elementId":"a2670d42-b660-4e4d-ba8f-3af64f548ff6","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The RBA said inflation “in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.
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","elementId":"589da436-d0fc-4f2f-b795-e5e720983966","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"1c657148-e4f9-4036-9f28-ed73e0d69393","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"“The Nikkei’s enjoying a decent retracement against Monday’s plunge, as comments from the Fed’s (Mary) Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week.
\nBut this is not exactly a risk-on rally. And we’re not yet sure if this is just a breather between water-boardings or there is more pain to follow.
\n
Mary Daly, the president of the San Francisco Federal Reserve, said last night she expects US interest rates will be cut later this year.
","elementId":"51dbd413-9fa0-4b91-95e0-2794653fdb80"],"attributes":"pinned":false,"keyEvent":true,"summary":false,"blockCreatedOn":1722925040000,"blockCreatedOnDisplay":"02.17 EDT","blockLastUpdated":1722925141000,"blockLastUpdatedDisplay":"02.19 EDT","blockFirstPublished":1722925141000,"blockFirstPublishedDisplay":"02.19 EDT","blockFirstPublishedDisplayNoTimezone":"02.19","title":"Analyst: there may be more pain to follow....","contributors":[],"primaryDateLine":"Tue 6 Aug 2024 07.33 EDT","secondaryDateLine":"First published on Tue 6 Aug 2024 02.17 EDT","id":"66b1b3c78f08afaf073aa9f0","elements":["_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
","elementId":"9a9de135-baa4-4c56-b943-d5e861724497","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"What a difference a day makes! Some 24 hour ago, the financial markets were in retreat – now, they’re bouncing back.
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","elementId":"da5fc4e2-b093-42dc-8c78-57f475ba3950","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The Nikkei ended the day up 3,217 points, or 10.3%, at 34,675 point..
","elementId":"0662cf3b-380b-415a-b7e6-21265991bc3e","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"That’s a record points gain, but below its biggest ever percentage gain of 14.2% in October 2008.
","elementId":"635b74c6-6cf2-4d5e-993a-c972d0b4349e","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"South Korea’s KOSPI index is 3.7% higher, while Australia’s S&P/ASX 200 is up a modest 0.4%.
","elementId":"7d90ab79-58a6-4c90-bb18-7e5f138acba1","_type":"model.dotcomrendering.pageElements.TweetBlockElement","source":"Twitter","id":"1820702478704263602","elementId":"267c734b-0141-4dd1-a383-64d4ce28648f","hasMedia":false,"role":"inline","url":"https://x.com/ForexLive/status/1820702478704263602","isThirdPartyTracking":false,"html":"","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Japan's Nikkei posts 10% rebound after worst day since 1987https://t.co/w8s9v9dWS8
— ForexLive (@ForexLive) August 6, 2024
Jim Reid, strategist at Deutsche Bank, calls it “a turbocharged turnaround Tuesday in Asia”, telling clients jovially:
","elementId":"3ee97685-5cfb-47a3-bc69-1041e90f85a4","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"03885f50-a56a-4f03-b7ec-33a3a475e241","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"On certain measures, yesterday was the wildest day of my 29-year career and will make the rides I’m going on at Disney Land Paris this time next week seem a bit like the toddler rides at Peppa Pig World by comparison.
\n
The future market predict indicate European markets, and Wall Street, will recover ground today too.
","elementId":"30a5daf1-529a-496a-b1c4-7b8ff2e775b1","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"The UK’s FTSE 100 index is being called up around 1%, after dropping 2% yesterday.
","elementId":"5700bbda-6304-409b-b52a-4b53c934e844","_type":"model.dotcomrendering.pageElements.TweetBlockElement","source":"Twitter","id":"1820678277997973959","elementId":"ed75e95c-ec0e-4a97-9f5e-060ba2303b88","hasMedia":false,"role":"inline","url":"https://twitter.com/truemagic68/status/1820678277997973959","isThirdPartyTracking":false,"html":"","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Global stock market carnage was rampant y'day - S&P500 -3%, NASDAQ -3.4%, Europe Circa -1.9%. Oil $77, Bond yields dipped. This AM Nikkei +10%. Opening calls likely to post neurotic bear-squeeze-rally early doors - FTSE +62 @ 8070 DAX +161 @ 17490 CAC +61 @ 7219 DJIA +382 @ 39085
— David Buik (@truemagic68) August 6, 2024
The recent stock wobble has been blamed on several factors, including concerns that a US recession is approaching. Those fears were eased somewhat by strong service sector data yesterday, showing a rebound in new orders.
","elementId":"25ed04a6-5a10-443e-ab9b-634451abd217","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Another factor is the end of the cheap money era, after the Bank of Japan lifted interest rates last week, squeezing the ‘yen carry trade’ under which investors borrowed yen cheaply to spend on other assets.
","elementId":"515575b8-c987-4061-ba51-f114f50874e4","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Stephen Innes, managing partner at SPI Asset Management, says several factors – including rising volatility – were to blame:
","elementId":"f5a1aceb-afe3-4950-abe9-21fe58898c27","_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"\n","elementId":"9fa31fec-9912-4b9b-b13f-461989053a04","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"While it’s easy to blame the usual suspect—the carry trade circus—a closer look reveals that there isn’t just one villain in this story. Given the economic climate, the yen carry and other leveraged bets were indeed skating on thin ice. The Bank of Japan might have missed an opportunity to pre-signal a rate hike, and the Fed’s decision to hold rates steady didn’t exactly calm the waters. And let’s not even start on the overinflated tech bubble on Wall Street—a ticking time bomb waiting to go off.
\nBut honestly, we’ve witnessed the perfect storm of market dysfunctions, glaringly apparent during those wild VIX surges when the market’s capacity to manage risk vanished. This was more than just a few bad calls or risky bets going south—imagine a game of hot potato with high-stakes assets, and suddenly, everyone’s hands are full. The higher the VIX, the fewer takers there are for another toss, leading to a market scenario that’s more about dodging than catching.
\n
Chicago Fed Bank president Austan Goolsbee made an effort to calm markets yesterday, telling CNBC that it is “not looking yet like recession”, despite Friday’s slowdown in job creation.
","elementId":"f4983c2e-4a79-47e1-a80e-78ebd982e506","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"That didn’t prevent Wall Street posting its worst drop in almost two years last night, though:
","elementId":"ac25a7ba-b8c4-4913-a048-2cededbadbd8","_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","prefix":"Related: ","text":"Wall Street suffers worst day in nearly two years after global sell-off","elementId":"a110df1d-1b7c-46c3-a615-18cfba69eee0","role":"thumbnail","url":"https://www.theguardian.com/business/article/2024/aug/05/us-stock-market-recession-dow-close","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Today’s calm could be due to a stabilisation in the yen. It is trading around ¥145/$ – having surged from ¥160/$ in early July to ¥141/$ yesterday.
","elementId":"0b07cd34-aab4-48dc-8acd-6204d41fd951","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"Traders will be looking for signs that policymakers will respond to concerns over economic growth, such as by cutting US interest rates.
","elementId":"738cea1b-0af9-42e3-bdc3-04960fa30661","_type":"model.dotcomrendering.pageElements.TweetBlockElement","source":"Twitter","id":"1820416454640164889","elementId":"0bc49a54-5d6d-4a2c-867d-39d288766217","hasMedia":false,"role":"inline","url":"https://twitter.com/brookskcbsradio/status/1820416454640164889","isThirdPartyTracking":false,"html":"","_type":"model.dotcomrendering.pageElements.SubheadingBlockElement","html":"Market pricing in 98% odds of a 50bp rate cut in Sept, with a 75bp cut entering the picture. The Fed may need to cut a lot sooner to support the Yen and prevent the US equity market from a quick dive into bear territory, because right now, that’s looking fairly likely.
— Jason Brooks (@brookskcbsradio) August 5, 2024
The agenda
","elementId":"99242c4e-114d-47a4-82d5-4df8165e908b","_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"- \n
- \n
7am BST: German factory orders for June 7amabrdn
\n - \n
8.30am BST: Eurozone construction PMI for July
\n - \n
9.30am BST: UK construction PMI for July
\n - \n
1.30pm BST: US trade data for June
\n - \n
3.10pm BST: RealClearMarkets/TIPP index of US Economic Optimism
\n
Key events
Yesterday’s market rout was a timely reminder that stocks can go down, as well as up…
…and that they tend to take the stairs up, and the lift down.
So says David Morrison, senior market analyst at Trade Nation, who detects an “uneasy calm” hanging over the markets today.
Morrison explains that the turbulence probably isn’t over, even though markets are currently rather calmer than yesterday:
Financial markets have steadied overnight, bringing some relief for investors following yesterday’s near melt-down.
Already, some commentators are insisting that the worst is over. Fears of a US recession are overdone, the Fed will soon be cutting interest rates (probably quite aggressively), a lot of the froth has been blown off the tech sector and investors have all unwound their yen-based carry trades painlessly. Panic over. Let’s get back to buying equities.
And the likelihood is that the bounce-back which began yesterday continues for a while. But what began last week, and what happened yesterday, should be considered a warning shot across the bows for all investors. The probability is that this isn’t over.
For a start, we have no idea how far through the carry-trade unwind we are. Then, we don’t yet know how much damage that has done to the hedge funds at the forefront of that trade. We will have to wait until September for a Fed rate cut. If they announce an emergency move before then, investors really will panic. And while fears of an imminent recession are overdone, it’s an absolute certainty that one is on its way. But as for when, who knows?
Uber beats forecasts, as growth engine hums away
Over in New York, ride-sharing firm Uber has reported better-than-expected financial results.
Uber has posted earnings per share of 47 cents for the second quarter of this year, beating analyst estimates of 31 cents.
Revenues grew 16% to $10.7bn, ahead of the $10.57bn forecast.
And net income jumped 158% in April-June, from $394m in Q2 2023 to $1.015bn.
Despite concerns about a US recession, Uber executives sound rather upbeat.
Uber’s CEO, Dara Khosrowshahi, says:
“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.
The Uber consumer has never been stronger--more people are using the platform, and more frequently, than ever before--while drivers and couriers earned a new all-time high of $17.9 billion over the quarter.”
$UBER Q2 2024
“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.” – @dkhos
MAPCs +14%
Gross Bookings +19%
Trips +21%
Revenue +16%
*Mobility +25%
*Delivery +8%
*Freight -0.5%
EBIT… pic.twitter.com/qnjnJsB73U
$UBER Q2 2024
“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.” – @dkhos
MAPCs +14%
— Quartr (@Quartr_App) August 6, 2024
Gross Bookings +19%
Trips +21%
Revenue +16%
*Mobility +25%
*Delivery +8%
*Freight -0.5%
EBIT… pic.twitter.com/qnjnJsB73U
Shares in Uber have jumped 6% in pre-market trading.
Midday European catch-up
After a choppy morning, European stock markets are looking becalmed, as investors look to Wall Street for inspiration.
Here’s the state of play, after the initiall recovery from yesterday’s losses fizzled out.
-
The UK FTSE 100: up 5 points or 0.06% at 8013 points
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Germany’s DAX: up 6 points or 0.04% at 17,345 points
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France’s CAC: down 19 points or 0.27% at 7,129 points
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Spain’s IBEX: down 41 points or 0.4% at 10,382 points
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Italy’s FTSE MIB: down 30 points or 0.1% at 31,266 points
We’re still expecting Wall Street to open higher; the futures market now has the Dow Jones industrial average up 0.8% or so.
The pound remains at its lowest level in over a month against the US dollar, at $1.2698.
Luke Bartholomew, deputy chief economist at abrdn, says the current market volatility is being driven by three macroeconomic drivers.
First, weak US data reigniting recession fears. Last week’s labour market report was soft across the board, with unemployment now rising in a manner historically consistent with a recession. However, the services ISM rebounded to 51.4 in July from 48.8 previously and the PMI equivalent was even firmer at 55. And the Senior Loan Officers Survey pointed to stabilising credit conditions, although without any loosening from the sizeable tightening over the last few years. More broadly, relatively few economic data are consistent with a recession. Consumer spending and business investment were both solid through Q2, and the Atlanta Fed nowcast is tracking a 2.5% gain in Q3 GDP. Indeed, the NBER recession indictors are signalling few signs of alarm. On balance, then, while we take the deterioration in the US labour market very seriously, we don’t think the economy is in a recession.
The second, and related, driver is the sense that the Fed might be falling behind the curve in responding to weak US data. If the Fed had been meeting this week rather than last, it may well have cut rates. But this does not mean that an unscheduled meeting to announce a rate cut now is likely. In fact, such a move risks heightening volatility by creating a perception of panic. Instead, policymakers will probably try to use verbal interventions to reassure markets. For example, Chicago Fed President Austan Goolsbee was very much looking to calm nerves in comments yesterday, arguing that the employment data was just “one report”, and that the economy does not look to be in recession. We expect similar messages from other Fed speakers in due course. But what is important to stress is that the path to a soft-landing runs through rate cuts. There is a vital distinction between rate cuts that are delivered pre-emptively to stop a slowdown, and reactive rate cuts that come in response to a slowdown. The market needs reassurance the Fed is ready to deliver pre-emptive easing and will not wait until the economy is clearly in recession before cutting.
For now, we continue to forecast a 25bps cut in September, along with a clear path towards further easing this year and next. But another weak labour market report or little let-up in market stress could easily tip the Fed towards delivering a more rapid cutting cycle. We expect the Bank of England and European Central Bank to also extend their rate cutting cycles later this year, although most recent market pricing probably exaggerates the speed and scale of those cuts.
The third driver of volatility is the unwind of the yen carry trade. The Bank of Japan (BoJ) announced more monetary tightening than expected last week, causing a sharp appreciation in the yen. As the yen has been a preferred funding currency for the global carry trade, this appreciation caused a significant positioning unwind, begetting a positive feedback loop of yen appreciation. The BoJ will probably be somewhat chastened by the size of the moves in equity and currency markets. Given that the progress on underlying inflation in Japan is far from complete, it is not obvious that Japan needs a material tightening of financial conditions. So, while the unwind of the carry trade might have further to run, and we expect further tightening from the BoJ, policy rhetoric may now soften and the next hike could be delayed until much later into the year.”:
Copper continues to suffer from concerns that economic growth may slow.
Copper prices extended losses today, pulled down by worries about global growth and weak demand in China.
The three-month copper price on the London Metal Exchange (LME) has eased 1% to $8,798 per metric ton this morning, after dropping 1.8% on Monday when it hit a four-month low, Reuters reports.
Hopes of a strong bounce-back on Wall Street are also fading.
The latest futures market prices suggest we’ll only see a small recovery when trading begins in three hours.
⚠️ U.S. STOCK INDEX FUTURES PARE GAINS; S&P 500 E-MINI FUTURES UP 0.4%, NASDAQ FUTURES UP 0.3%, DOW FUTURES UP 0.2%
— PiQ (@PiQSuite) August 6, 2024"">⚠️ U.S. STOCK INDEX FUTURES PARE GAINS; S&P 500 E-MINI FUTURES UP 0.4%, NASDAQ FUTURES UP 0.3%, DOW FUTURES UP 0.2%
— PiQ (@PiQSuite) August 6, 2024
The outlook for the UK construction sector looks to be quietly optimistic, flags Emma Fildes of Brickweaver, after July’s pick-up.
Civil engineering followed by housing and commercial activity forged ahead in July 24 as customers’ confidence returned boosting new orders which in turn caused more firms to expand their workforce. Generally, within the industry, the 12mth outlook is quietly optimistic @SPGlobal pic.twitter.com/md2NawGNTE
— Emma Fildes (@emmafildes) August 6, 2024"">Civil engineering followed by housing and commercial activity forged ahead in July 24 as customers’ confidence returned boosting new orders which in turn caused more firms to expand their workforce. Generally, within the industry, the 12mth outlook is quietly optimistic @SPGlobal pic.twitter.com/md2NawGNTE
— Emma Fildes (@emmafildes) August 6, 2024
A shortage of building workers could undermine the UK construction sector’s recovery, warns Kelly Boorman, national head of construction at RSM UK:
There has been some volatility in the market, due to a lack of access to affordable funding, the impact of wet weather and ongoing labour shortages. With the availability of subcontractors falling in July, there is likely to be a tightening of labour and the supply chain due to increased activity, so there are some concerns over whether housing targets are achievable.
“To avoid housebuilding targets from becoming pie in the sky, construction needs more clarity on where labour and funding is coming from to realise housing volumes, especially businesses with plans for growth and ability to manage working capital.”
The pound is weakening on the foreign exchanges too.
Sterling has dropped by three-quarters of a cent this morning against the dollar, touching $1.27 for the first time since early July.
European markets back in the red
So much for turnaround Tuesday!
After a positive start, European stock markets have fallen into the red again.
The feeling of optimism following the sharp rally in Tokyo overnight has not lasted for long.
In London, the UK’s FTSE 100 share index is down 35 points, or 0.45%, at 7972 points – so still higher than its low point yesterday.
Germany’s DAX has lost all its earlier gains, now down 0.3%, while France’s CAC has lost another 0.6%.
Reminder, that follows a strong recovery in Asia after Monday’s rout, with Japan’s Nikkei surging around 10% – its biggest one-day jump since the financial crisis of 2008.
Eurozone retail sales fall
In less encouraging news, eurozone retail sales have fallen again.
Reail sales in the euro area dropped by 0.3% in June, new data shows, missing forecasts for a 0.2% rise.
Analysts at ING say this is “more sluggish news about the eurozone economy” as consumers postponed the retail recovery again.
Eurozone June retail sales m/m -0.3% (est -0.1% last +0.1%)
Weakness persist in Europe... pic.twitter.com/vrx0tOnP8z
