European equities sink as China retaliates to US trade pressure and bond yields fall
European shares continued their losing streak on Thursday as China suggested they would be implementing retaliatory trade tariffs and global bond yields sank on recession fears.
The FTSE 100 sank as low as 7,021 in early trading on Thursday, the lowest intra-day level since February.
Despite starting the day in largely flat, stocks were not able to stage a come back from the recent sell off and resumed the move to the downside as China said they were to take count-measures in retaliation to $300 billion of US tariffs on Chinese goods.
The announcement from China unnerved markets already concerned with the risk of recession following a raft of poor data from the world’s major economies.
The worsening outlook has driven investors to the relative safety of bonds sending benchmark US 10-year yields to the lowest levels since 2016.
The move lower in bond yields comes as many of the yield curves of major economies around the world remain inverted, traditionally a sign of an upcoming recession.
Despite equity markets being heavily oversold, some analysts are wary about the prospects for a sustained recovery in the short-term.
“While there may be some bounce as dip buyers test the water, any recovery looks precarious as global risks and macro-economic data show no signs of improving,” said markets.com analyst Neil Wilson.
The FTSE 100 has fallen around 8% from recent highs and is nearing the psychologically important 7000 support level.
FTSE 100 and European shares fall on weak German and Chinese data
Investors took disappointing data from Germany and China as a cue to sell equities on Wednesday with major European indices deep in the red in afternoon trading.
Data released from Germany suggested Europe’s largest economy was on the brink of recession with a preliminary GDP data showing a contraction of 0.1%.
Poor Chinese data overnight compounded market woes as fears grew two of the world’s powerhouse were starting to feel the impact of global trade wars. Connor Campbell of SpreadEx summarised the latest instalment of Chinese economic data:
“Fixed asset investment fell from 5.8% to 5.7% month-on-month, missing out on the estimated bounce. There were sharper declines in industrial production, from 6.3% to a far worse than forecast 4.8%, and retail sales, which dropped from 9.8% to 7.6%. All this, but especially those industrial numbers left the FTSE’s commodity sector in a bit of a state.”
A weaker sterling had been supporting the exporter heavy FTSE 100 in recent days but with has broken down with GBP/USD halting its decline and making a mild attempt to bounce back above 1.2100.
The FTSE 100 fell was down over 1.5% by late afternoon trading on Wednesday.
The negativity in markets was highlighting by the failure of equities to respond to developments in the Chinese/US trade war that has for long provided investors with reason to buy any dips.
“It’s almost as if global investors either don’t buy the tariff delay as a sign of real progress in the U.S.-China trade war or have been too consumed by further evidence of global economic weakness to care,” said BMO Capital Markets strategist Stephen Gallo.
The United States have pushed back a number of proposed tariffs on Chinese goods including computers, video game consoles and mobile phones.
President Trump said the US were “doing this for the Christmas season. ” It’s provided to bring little cheer to stock markets thus far.
Lookers post ‘car crash’ interim results as UK car market deteriorates
Lookers (LON:LOOK), a leading UK car after-sale service provider, have today posted interim results for the six month to 30th June that have been described as a ‘car crash’ by analysts.
Underlying profit before tax fell 27.5% to £29.3m while Basic Earnings per Share crashed by 41.3%.
Lookers CEO Andy Bruce attributed the drop in profitability to a slower UK car market saying Looker’s “performance for the first half reflects an ongoing backdrop of challenging UK market conditions for the sector.”
Highlighting the drop in activity and a major headwind for Lookers, the Society of Motor Manufacturers and Traders’ July UK car sales figures showed a 4.1% drop in total car sales to 157,198 from 163,898 a year ago.
Ed Monk, associate director from Fidelity Personal Investing’s share dealing service commented on the results:
“It’s been a car crash six months for Lookers and that’s reflected in interim results today.”
“It warned last month that profits for the year would reduce significantly, and that’s reflected today in a fall in profit before tax over the period of 39.7%. The Looker’s dividend stays but will be reviewed.”
“The market for new and used cars is stalling because buyers appear to be putting off purchases as economic news gets worse. Drivers may also be waiting for more clarity over the status of diesel cars, sales of which have collapsed due to fears of stricter regulations on vehicle that use the fuel.”
“In the face of all that buyers are sitting on their hands and prices on forecourts have been tumbling this summer, and that’s felt directly on Looker’s bottom line.”
“That would be bad enough but the company is facing scrutiny from financial regulators over how it incentivises staff selling car finance packages.”
“A few brave investors have been buying Lookers as a value play, but many were immediately burned when the profit warning came through. The shares do look exceedingly cheap, but that comes with a hazard warning.”
Maestrano shares dip as fintech partnership is scrapped
Provider of software for master data management and business analytics Maestrano Group (AIM: MNO) has seen its share price dip following news that the platform it had delivered to an Australian banking client was to be decommissioned, as a result of ‘a change customer priorities’.
As opposed to being a purely banking platform, the platform they designed offered applications for a ‘specific vertical market’. Following the implementation of the platform, the Australian banking client decided to change its approach to the vertical market. Based on this strategic shift, the custom shift will be decommissioned on 30 August 2019.
Maestrano said the projected subscriber income for the platform wasn’t significant and thus the impact on its revenue forecast would be minimal. The Company said it will concentrate on developing solutions for clients in the distribution and accounting verticals, and is discussing meger and acquisition opportunities.
Maestrano comments
Andrew Pearson, company CEO, commented:
“We are seeing an established pattern across our industry of banks discontinuing what are termed “Marketplace as a Service” platforms, where 3rd party applications are offered to bank clients. We now believe that banks assumed a faster digitalization of small businesses than is happening in practice. There remains no doubt in our mind that this digitalization will eventually occur, but we are now taking a conservative view of the timing and focusing on established markets where our technology can add value today.”
Ian Buddery, Chairman of the Board, said,
“This development confirms the decision made in May to explore opportunities to acquire complimentary products and teams, where clear opportunities existed to accelerate shareholder value. We have identified some interesting opportunities and will make further announcements when possible.”
Investor notes
The Company’s shares dipped 13.79% to 1.30p a share at market close 12/08/19. The Group’s market cap is currently £1.00 million. Elsewhere in the tech sector, there were updates from; Vitec Group plc (LON: VTC), TT Electronics (LON: TTG), SDL plc (LON: SDL), Dialight Plc (LON: DIA) and Seeing Machines (LON: SEE).European indices halted by recession fears, pound avoids decade low
After struggling to keep pace during morning trading, the FTSE and pound both trundled along in much the same manner in afternoon trading. The pound avoided remained flat and avoided emulating the erratic movement of its counterparts, narrowly dodging the decade-low benchmark. Meanwhile, more analysts joined the recession fanfare with the Sino-US back-and-forth appearing no closer to resolution. The affect this had on larger European indices was an abrupt halt to their morning rallies.
Markets appear at the mercy of the largest players; the UK awaits the long-prophesied Brexit collapse that may not come.
Reflecting on market and currency movements through the day, Spreadex financial analyst Connor Campbell commented,
“A strong start from Europe somewhat dissipated in the face of a less than enthusiastic open from the Dow Jones.”
“After Goldman Sachs (NYSE: GS) warned of the rising risk of a US recession due to the ongoing and increasingly hostile trade tensions between America and China, the Dow Jones had little reason not to unravel on Monday. This meant that the index dropped more than 130 points as the bell rang on Wall Street, taking it back under 26200.”
“This Dow decline had the side effect of undermining Europe’s initial giddiness. The DAX and CAC, which at points this morning were both up more than 1%, saw their gains reduced to just 0.3% and 0.2% respectively. The FTSE, meanwhile, was left with just a handful of points, the UK index once again trapped below 7250.”
“Though it avoided a return to the scary 10-year nadir struck in the early moments of the session, the pound’s early rebound against the euro gradually waned as the day went on. Instead it was left up a paltry 0.1%, leaving it perilously close to that aforementioned decade low. A 0.2% from cable, meanwhile, put a few millimetres between sterling and levels last seen 32-months ago.”
“Desperately searching for a bit of good news, the pound will be praying for a strong wage growth figure on Tuesday, even if any positive headlines not related to Brexit are merely a plaster where emergency surgery is needed.”
Other market and macro financial updates have come from; the Monday morning market roundup, UK GDP during the second quarter, the London Stock Exchange Group (LON: LSE), the US-China currency manipulation debacle, and analysts’ outlook for markets and currencies.UK sees familiar grey skies, FTSE follows suit
After an exciting – if not positive – start to last week, the tale of the tape for markets on Monday appears decidedly more dull. With little on the calendar and the FTSE predictably lagging behind mainland European indices, onlookers will be holding their breathe for the next tweet from Trump and the anticipated announcement of a snap election, courtesy of Boris Johnson.
With updates further prophesying the death of the highstreet and China releasing fundamentals today, Spreadex financial analyst Connor Campbell commented on the outlook for markets and currencies,
“The markets were determined to start what is looking like an otherwise quiet Monday by putting their best foot forward.”
“Despite still having plenty to worry about, from the trade war to Brexit – the impact of which may be evidenced by the week’s data, including a UK jobs/inflation/retail sales relay and a data-dump from China – the European indices sprung out of the gate.”
“Leaping 130 points higher, the DAX once again crossed 11800, pushing it back above 11800 and leaving it at its best price since the market-wide plunge suffered this time last week. The CAC was in near enough the same situation; a 1.1% rise put the French bourse at 5375, though that remains around 300 points off of where it was at the end of July.”
“Hampered oh so slightly by the pound’s futile attempts at a comeback – while cable’s unchanged at a 32-month nadir, against the euro sterling is up 0.3% – the FTSE couldn’t quite match the giddiness of its Eurozone peers. Nevertheless, a 50 point climb put the UK index within touching distance of 7300, around 100 points shy of where it opened last Monday.”
“Calendar-wise, Monday is a bit of a dust bowl, leaving the stage free for a rebound-disrupting tweet from Trump or growth-undermining statement from Beijing. The rest of the week, however, should make up for the quiet start.”
So, I won’t be smiling while I take out Euros for my holiday this week, but realistically nothing dramatic has happened. Our best advice going forwards would be to trade cautiously but not to ‘chase the story’ (so to speak) on markets, whether the next doom and gloom candidate be Brexit or a recession. There is always potential for catastrophe but by no means is it ever under-represented by media outlets and chat forums. Other market and macro financial news has come from; UK GDP during the second quarter, the London Stock Exchange Group (LON: LSE), the US-China currency manipulation debacle, and analysts’ outlook for markets and currencies.