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The Early

25 Jun 2019 07:35

Markets: pause to reflect

After all last week's excitement, a low volume drifty Monday session for European equities was no great surprise. Germany's DAX underperformed, following the profit warning from Daimler over the weekend, which dragged down the broader autos sector, and the disappointing IFO index release. Every Euro Stoxx sector ended lower, but none by more than the -0.6% decline for the oil & gas group.

The UK indices managed some modest outperformance, thanks primarily to the more defensive mega cap groups (beverages +1.4%, pharmaceuticals +1.0%); the retailers were weak on renewed concern about the outlook for UK consumer spending (food retail -1.6%, general retail -1.5%) and the Asian lenders weighed on the banks -0.8%. Media +0.5% and industrial services +0.1% were our only PHySiCS mid/small cap sectors to close firmer; it was a flat day for the style factors.

Overnight. The US benchmarks edged steadily lower through the session with energy -0.9%, consumer discretionary -0.5% and health care -0.5% all underperforming, as materials +0.5% headed the S&P sector rankings; volumes were notably light. The mood soured in Asia, notably in China and linked markets which turned lower, likely a reflection of returning doubts about the G20 trade discussions. The US dollar remained broadly weaker, offering more support to gold, but the oil price edged lower. Europe is likely to open lower.

Early numbers. Dow +0.03%, S&P -0.17%, NASDAQ -0.32%, VIX 15.26; US 10-yr 1.99%; Nikkei -0.73%, Hang Seng -1.34%, Shanghai Comp -1.65%; £=$1.2753, £=€1.1179, Brent $64.29/bbl, Gold $1430.62; FTSE 100 indication +23 (at 6.25 UK).

Macro: still misfiring

The IFO business sentiment survey for June provided little encouragement about the outlook for the German economy. The headline reading fell to 97.4 (from 97.9), its lowest level since November. The weakness was focused in the expectations measure, down by -1pp to 94.2, as the current situation reading was stable at 100.8. The manufacturing, services and construction sectors all recorded a lower optimism reading and the commentary suggested that the economy is “heading for the doldrums”.

Minutes of the Bank of Japan's April discussions confirmed that members discussed the negative side effects for the financial sector of persistently ultra-low interest rates.

Today’s events. UK Jun CBI Distributive Trades (11.0) reported sales +0; US Jun consumer confidence (3.0) 132.0; US May new home sales (3.0) 686k, +1.9% YoY.

Ian Williams
Economics & Strategy
020 7418 8819
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