Daily Briefing: Air turns thin for equities and euro/dollar

LONDON (Reuters) – The ongoing slide of the dollar pushed the main euro/dollar TransAtlantic pairing to another 2-1/2-year high of $1.1909 overnight. But the air proved thin up there, much like the charge higher in world equity markets on Wednesday, and the euro has settled back about $1.1840 early on Thursday.

Even though an Apple-led Dow Jones index closed above 22,000 for the first time ever yesterday – it only topped 20,000 for the first time in January – there was lots of talk of tech stocks hitting a bit of ‘speed bump’ around here. Despite Apple’s near 5 percent gains, the likes of Microsoft and Facebook ended in the red.

Tiredness is hardly surprising after tech sector gains of almost 25 percent so far this year. Some of that thinking saw a pullback in tech stocks in Asia overnight, with South Korea’s Kospi underperforming with losses of 1.9 percent as a result – compounded by a plunge in construction stocks there as the government announced new curbs to cool the housing market.

Shanghai and HK stocks ended lower too, with growing attention on U.S./China trade relations as U.S. President Donald Trump seeks an investigation into Chinese trade practices – a deterioration in relations complicated by tensions over North Korea’s nuclear programme. Three top Democratic senators, in a rare show of bipartisanship, on Wednesday urged Trump to stand up to China as he prepares to launch an inquiry into Beijing’s approach to intellectual property and other sensitive trade issues.

A growing trade row is only adding to pressure on the ailing dollar, which has lost over 12 percent against the euro since the end of March. Despite double-digit earnings growth in Q2 and private sector payroll growth last month of another 178,000, expectations of a third Federal Reserve interest rate rise this year have dissipated and futures markets now only see a 35 percent chance of another hike by the end of 2017.

The big event in Europe later in the day is the Bank of England’s latest policy decision and inflation report but after a surprising burst of hawkishness from policymakers there at the end of June, markets now expect the Bank has turned more dovish again and the vote split to keep rates unchanged will have moved to 6-2 from 5-3 last time out. Sterling’s recent gains against the weakening dollar will have helped in that regard, despite Bank warnings about excessive rises in consumer lending.

A slew of euro zone bank results will drive benchmark moves on Thursday, after a financials-led slump in the previous session as Societe Generale and Standard Chartered disappointed. Results looked healthier from Credit Agricole and UniCredit, with both reporting forecast-beating profits for the second quarter.

Futures indicated European blue-chips would slip 0.1 percent and the DAX would fall 0.3 percent, while the CAC 40 and FTSE 100 were set to open steady. Markets are also keeping half an eye on the Czech central bank meeting today, given signals it could lift interest rates in either August or September.

by Mike Dolan; editing by John Stonestreet

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