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The Early

25 Jul 2017 07:08

Markets: flying lower

UK equities handed back a chunk of last week's outperformance yesterday, due to combination of industry and company-specific factors. At the top end of the market, disappointing numbers from RB. -3% and fears of a price war putting pressure on the airline stocks featured among broad weakness across the FTSE 100, with banks +0.15% among the few sector gainers. Further down the size range, there was at least a little corporate action to focus on (B&M/Asda) and five of our 12 PHySiCS mid/small cap sectors were able to make progress, led by oil & gas +3.0%.

The Eurozone indices were mixed, with the DAX hit by the prospect of an EU antitrust probe of Germany's auto makers, but France, Italy and Spain ending higher. Financials +0.54% and health care +0.46% topped the Euro Stoxx industry group tables.

Overnight. The S&P technology sector added +0.25%, pushing the NASDAQ to another new all-time high, but Alphabet weakened on results after hours. Financials +0.31% was the only other sector to end in positive territory as the S&P and Dow edged lower on modest volumes. 190 S&P constituents are due to report earnings numbers this week. The US dollar finally found some support in Asian trading, where equity indices were mixed. Oil firmed on OPEC's efforts to cap Nigerian output. European opening calls are a touch higher.

Early numbers. Dow -0.31%, S&P -0.11%, NASDAQ +0.36%, VIX 9.43; US 10yr 2.25%; Nikkei -0.62%, Hang Seng -0.03%, Shanghai Comp -0.20%; £=$1.3026, £=€1.1174, Brent $48.87/bbl, Gold $1255.06; FTSE 100 indication +18 (at 6.25 UK).

Macro: change of pace

The pace of the improvement across the Eurozone's economy through H1 was always likely to be difficult to sustain into H2. So the slight decline in region's 'flash' PMI readings for July is no great surprise. The composite index dipped to 55.8 (from 56.3) with services unchanged at 55.4 and manufacturing dipping to 56.8; the overall reading remains consistent with GDP expanding by around +0.6% QoQ. Bottlenecks through the supply chain reflect the difficulties for many firms in matching demand, which should support employment growth in the coming months. The forward business sentiment readings, although still high by historic standards, were at their weakest since January. The pattern was similar at a national level for both Germany and France.

A shortage of available properties weighed on US existing home sales, which registered a decline of -1.8% MoM to 5.52m units sa in June. The median sale price increased by +6.5% YoY to a new all-time high.

The BoJ minutes released overnight echoed a familiar dilemma for central bankers, as members disagreed on how to communicate a potential withdrawal of QE, when it eventually is justified by the inflation data.

Today's events. Germany July IFO (9.0) 114.9, current assessment 123.8, business expectations 106.5; UK July CBI Industrial Trends (11.0) +11; US July consumer confidence (3.0) 116.5.

Ian Williams
Economics & Strategy
020 7418 8819
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