JP Morgan Chase building
Markets take breather ahead of US banks reporting / Image source: Adobe

European equities took a slight pause for breath on Friday, on the back of sizeable gains on Wednesday and Thursday, with eyes now turning to the health of the US corporate sector.

Easing US inflation readings lifted the mood earlier this week, but earnings from major US banks are now the next risk event for equities to negotiate. The slew of earnings begins with the likes of JPMorgan Chase & Co, Wells Fargo and Citi later.

The FTSE 100 index opened up 2.35 points at 7,442.56. The FTSE 250 was down 57.49 points, 0.3%, at 18,574.22, and the AIM All-Share was up just 0.1 of a point at 750.40.

The Cboe UK 100 was flat at 742.35, the Cboe UK 250 was down 0.3% at 16,299.34, and the Cboe Small Companies was up 0.4% at 13,565.49.

In European equities on Friday, the CAC 40 in Paris was up 0.2%, while the DAX 40 in Frankfurt was down 0.1%.

New York closed higher on Thursday, with the Dow Jones Industrial Average up 0.1%, the S&P 500 up 0.9%, and the Nasdaq Composite up 1.6%.

Federal Open Market Committee member Christopher Waller on Thursday said he saw two more 25 basis point interest rate hikes ‘as necessary to keep inflation moving toward our target’, speaking to an audience in New York. The market is largely unconvinced this will materialise, however.

According to CME Fedwatch tool, there is a 92% chance of a 25bp hike later this month, and then an 81% likelihood that rate hikes are paused in September. The federal funds rate range currently stands at 5.00% to 5.25%.

Both the consumer price inflation data and producer price inflation data came in cooler than the market had been expecting. These have stoked hope that the Fed’s rate hiking cycle is close to an end and the US economy could see the much-desired ‘soft landing’, as wider economic data continues to be somewhat robust.

The dollar was mixed against major currencies in early exchanges in Europe, but has fallen considerably over the week.

Sterling was quoted at $1.3111 early Friday, higher than $1.3102 at the London equities close on Thursday. The euro traded at $1.1214, up from $1.1192. Against the yen, the dollar was quoted at JP¥138.42, up from JP¥138.12.

Around the same time on Monday, the pound was trading at $1.2821, the euro at $1.0960, and the dollar bought JP¥142.46.

ING said there were ‘tectonic shifts’ in foreign exchange positioning, with dollar long positions ‘evaporating rapidly’.

‘The disinflation narrative has landed heavily on the dollar, and a look at the next couple of weeks – in the lead up to the July FOMC meeting – shows that there aren’t many other data releases that can drastically turn the tide for the greenback,’ analysts at the Dutch bank said.

Later Friday, there will be half-year earnings from asset manager BlackRock and banking firms Citigroup, JPMorgan Chase & Co and Wells Fargo.

Among London-listed large-caps, Burberry fell into the red, despite a fairly upbeat trading update and reiterating its annual guidance.

In the 13 weeks that ended July 1, the London-based luxury fashion house said overall comparable store sales rose 18% from a year earlier, including a positive performance across several global divisions.

Comparable store sales for the group excluding Mainland China were up 11%. Within that, Europe, Middle East, India and Africa sales were up 17%, South Asia Pacific up 39%, Japan up 44% and South Korea up 6%. The Americas division was an outlier, falling 8%.

Burberry also reported a ‘strong recovery’ in Mainland China, where comparable store sales rose 46%.

AstraZeneca rose 1.1% as HSBC raised the stock to ’buy’.

In the FTSE 250, Ashmore fell 6.4% and Liontrust fell 4.2%, with both asset managers reporting outflows.

Emerging markets-focused Ashmore said its assets under management in the fourth quarter ended June 30 are expected to have fallen 3.1% to $55.9 billion from $57.7 billion on March 31. It saw net outflows of $2.9 billion during the period.

Over the same period, Liontrust Asset Management reported net outflows of £1.6 billion during the period, compared to £541 million a year prior. At the end of June, its assets under management and advice totalled £29.51 billion, falling 6.1% from £31.43 billion at the beginning of April.

On AIM, Zoo Digital plunged 31%.

Zoo said trading in its first quarter has been affected by cost-savings measures at its major streaming company clients, as well as the ongoing strike at the Writers Guild of America. The AIM-listed firm provides cloud software-based subtitling, dubbing, and media localization services.

Revenue during the period was consequently lower than management’s previous expectations.

‘Despite the short term industry-wide uncertainly alluded to above, Zoo expects to be in an even stronger position with several customers following a rationalisation of their supplier bases with Zoo selected as one of a smaller number of vendors,’ the company said.

It expects revenue growth to return in the second half of its year.

In Asia on Friday, the Nikkei 225 index in Tokyo closed down 0.1%. In China, the Shanghai Composite closed marginally higher, while the Hang Seng index in Hong Kong was up 0.3% in late dealings. The S&P/ASX 200 in Sydney closed up 0.8%.

Michele Bullock will become the Reserve Bank of Australia’s first woman chief in its 63-year history starting in September, the Australian government said Friday, effectively sacking the incumbent following a series of unpopular rate hikes.

After 43 years at the bank, outgoing chief Philip Lowe has recently been dogged by criticism from the government and media over the rate increases, which were aimed at taming inflation but have raised mortgage costs for homeowners.

Gold was quoted at $1,955.98 an ounce early Friday in London, edging lower than $1,956.63 late on Thursday. Brent oil was trading at $81.04 a barrel, up from $80.65.

The economic calendar for Friday has EU foreign trade data at 1000 BST.

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Issue Date: 14 Jul 2023