Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, the European indices tested in low. The weakness of the dollar that hit Asian markets, prompted by President Trump’s remarks, should condition European stock markets. The sectors with the highest propensity to export such as the automobile, the industrial sector and the luxury goods sector should be the most vulnerable. The presentation of results will take on a larger dimension in the coming days (84 of the DJStoxx600 members will report their quarterly accounts). According to the latest estimates, company profits will have grown 8.20% in the second quarter of this year, compared to the same period of 2017. However, excluding the oil sector, the increase in profits will have been more contained (+ 3.10%). The increase in revenues is estimated to have been 5.20%. Once again, this variation is inflated by the accounts of the oil companies. If we exclude these companies, revenues will have risen by a mere 0.50%. So relevant or more than the results themselves, will be the considerations that CEOs of companies will make of the current tension between the US and its trading partners. The exposure to world trade in European companies is far superior to its American counterparts: more than half of its revenues are generated outside Europe compared to the 30% of revenues that US companies originate outside the United States.
The American markets ended the session with contained variations. Last Friday was essentially marked by two themes: President Trump’s remarks to the CNBC financial television channel and the presentation of results. In an interview given on Thursday but only issued in full on Friday, President Trump threatened to charge customs duties to some extra 500,000 M.USD of goods imported from China. In other words, all Chinese imports may be subject to increased customs duties. In fact, in 2017, Chinese exports to the United States totaled 505,000 M.USD, while US exports to the Asian country were 130,000 M.USD. Despite the multiple threats, so far only 34 000 M.USD of goods have been taxed by both parties. But the warnings of Donald Trump were not merely about commercial politics, extending to the exchange market. In the same interview, the American President accused Europe and China as well as other countries of manipulating their currencies, weakening them artificially against the dollar, in order to favor their exports. According to the President, in the case of Europe, this alleged manipulation would have a negative impact of 150 000 M.USD on the American economy. The reaction of American markets to Donald Trump’s threatening tweets has swung from deep fears to perception that fit into a bargaining strategy. On Friday, investors opted for the second version, which translated into modest reactions to this issue. This interpretation is justified to the extent that in recent days, trade negotiations with Mexico have advanced and yesterday the President of the European Commission Juncker agreed to reduce tariffs on imports of automobiles and their components (to remember that American exports of automobiles pay 10% of tariffs in Europe but European exports to the US pay only 2.50%). It can not be excluded that this more lenient interpretation of the market was not favored by the positive sentiment generated by good business results. Although the industrial sector is one of the worst performers of this year, of the 18 components that make up this sector and have already reported their accounts, all of them have surpassed analysts’ estimates. Today, it starts one of the most intense weeks of the earnings season. After closing, Google will report its quarterly accounts. Analysts anticipate EPS of 9.80 USD and revenues of 31600 M.USD. In the last 4 quarters, Google’s shares reacted negatively to results by 3 times on the day immediately following its publication, having been valued only once.
With the exception of Chinese markets, Asian stock markets lost arround 1%. The devaluation of the Dollar was the main weakness of these markets. The correction of the dollar was due to President Trump’s accusations against China, the European Union and other countries of artificially weakening their currencies in order to achieve a competitive advantage of their products. The impact of the devaluation of the Dollar was particularly visible in exchanges such as Tokyo where the export sector plays a significant role.