Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 15 July – Bear Steepening into Summer Selloff?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Markets are not really reflecting the scale of the tariff threat – the assumption is 30% on the EU and potentially 200% on pharmaceuticals will be scaled down substantially. The EU has finalised a second list of countermeasures to target $72bn of US goods including Boeing and bourbon. Trump has threatened 100% tariffs on countries that buy Russian oil – peace through tariff strength? We live in Trump’s world for sure.
Stocks are looking through the tariff news and now the big test awaits with earnings season kicking off properly today with JPMorgan, Citigroup and Wells Fargo due to report Q2 numbers. Trading volatility should help but do they ever really get credit for those earnings with a rerating?
Yesterday the FTSE 100 rallied about 0.65% to hit 9,000 for the first time and closed at the highs to set a fresh record peak, while the DAX and CAC both shed about a third of a percent on the tariff story. Hardly a big move to the downside and this morning Paris and Frankfurt trade a touch higher while London was almost unchanged at its new summit.
US stocks rose a touch yesterday as did the VIX – maybe investors are starting to see this is a market priced for perfection with only a slim chance of the economics and politics all falling neatly into line. Nvidia said it has won approval to resume selling its H20 GPU in China, which bodes well for the broader semis and tech space. US futures are firmer this morning.
US CPI inflation data is due today – looking for signs that this will tick up as a reaction to tariffs and pressure the Fed to stay cautious for longer than expected and certainly longer than President Trump would like. Headline CPI, which had ticked down to as low as 2.3% a couple of months ago, is seen rising back to 2.7%, whilst core CPI could rise to 3.0%. Look for categories like autos and furniture to push the index up as tariffs take effect. But US National Economic Council boss Kevin Hassett has a theory why inflation hasn’t taken off – Americans are patriotically buying domestic goods.
Perhaps more importantly for the market than any of the hard data is what happens to Fed chair Jay Powell, with mutterings about his future growing ever louder. We could easily see bear steepening with markets moving to lower short-end yields and the long-end of the curve getting out of hand...negative for USD and potentially sparking a volatile gyration in stock markets even if a weaker USD is ultimately positive for USD-priced equities, ie, US stocks.
Some interesting company updates today that speak to the UK’s economic conundrum.
Robert Walters fell over 3% as its soft numbers show the jobs market is in peril with net fees down 13% and reporting a weaker set of new job flow and interviews than at the end of the prior quarter.
Barratt Redrow fell 10% on London international and investor weakness which led to fewer completions ... shortage of housing supply continues to support even as economy is tough. Planning reform? Management say they are still confident with outlook but also booked a £98mn hit to profits from new safety charges. Investors are worried about the capital flows into London property- one for the chancellor to address?
Cost of living: B&M shares struggled to find a price early doors but eventually opened down 13% on margin warning. Group revenues rose 4.4% but actual selling price deflation compressed margins in general merchandise.
Finally, Experian shares rallied almost 4% after it posted 10% revenue growth in North America, which accounts for two-thirds of group revenue.
London Quick Take – 15 July – Bear Steepening into Summer Selloff?
Key Points
- Stocks continue to ignore tariff threats
- FTSE 100 breaks 9,000 as Chancellor eyes bonfire of red tape
- Earnings season kicks off with JPM, Wells Fargo and Citigroup
- Nvidia to resume chip sales to China
“To be free we must be feared” – Macron set out goal of vastly increasing defence spending, which pushed French long bond yields to their highest since 2011. The US 30yr also approached 5% and is teetering - this is an important level and a sustained break above this level could lead to higher volatility and weigh on equity markets – a potential bear steepening summer selloff trigger? I suspect that long bonds are due a hit and this will lead to heightened volatility as the second half progresses. But ultimately as Western governments continue spending like drunken sailors, real assets like stocks and commodities should prosper.
Markets are not really reflecting the scale of the tariff threat – the assumption is 30% on the EU and potentially 200% on pharmaceuticals will be scaled down substantially. The EU has finalised a second list of countermeasures to target $72bn of US goods including Boeing and bourbon. Trump has threatened 100% tariffs on countries that buy Russian oil – peace through tariff strength? We live in Trump’s world for sure.
Stocks are looking through the tariff news and now the big test awaits with earnings season kicking off properly today with JPMorgan, Citigroup and Wells Fargo due to report Q2 numbers. Trading volatility should help but do they ever really get credit for those earnings with a rerating?
Yesterday the FTSE 100 rallied about 0.65% to hit 9,000 for the first time and closed at the highs to set a fresh record peak, while the DAX and CAC both shed about a third of a percent on the tariff story. Hardly a big move to the downside and this morning Paris and Frankfurt trade a touch higher while London was almost unchanged at its new summit.
US stocks rose a touch yesterday as did the VIX – maybe investors are starting to see this is a market priced for perfection with only a slim chance of the economics and politics all falling neatly into line. Nvidia said it has won approval to resume selling its H20 GPU in China, which bodes well for the broader semis and tech space. US futures are firmer this morning.
US CPI inflation data is due today – looking for signs that this will tick up as a reaction to tariffs and pressure the Fed to stay cautious for longer than expected and certainly longer than President Trump would like. Headline CPI, which had ticked down to as low as 2.3% a couple of months ago, is seen rising back to 2.7%, whilst core CPI could rise to 3.0%. Look for categories like autos and furniture to push the index up as tariffs take effect. But US National Economic Council boss Kevin Hassett has a theory why inflation hasn’t taken off – Americans are patriotically buying domestic goods.
Perhaps more importantly for the market than any of the hard data is what happens to Fed chair Jay Powell, with mutterings about his future growing ever louder. We could easily see bear steepening with markets moving to lower short-end yields and the long-end of the curve getting out of hand...negative for USD and potentially sparking a volatile gyration in stock markets even if a weaker USD is ultimately positive for USD-priced equities, ie, US stocks.
Sterling fell to a three-week low against the US dollar. It’s broken down at the 50-day moving average and looks to have further downside to run to as bullish bets are pared...DXY also at a three-week high at 98 though so this is about USD as much as GBP.
The Chancellor has a big task with her Mansion House speech tonight as far as the markets are concerned. It’s going to be very deregulation heavy, and I suspect more tinkering around the margins of what matters. The market is going to constantly test this government’s resolve and credibility...I suspect a fiscal reckoning by Sep/Oct as global long bonds are sold.
Some interesting company updates today that speak to the UK’s economic conundrum.
Robert Walters fell over 3% as its soft numbers show the jobs market is in peril with net fees down 13% and reporting a weaker set of new job flow and interviews than at the end of the prior quarter.
Barratt Redrow fell 10% on London international and investor weakness which led to fewer completions ... shortage of housing supply continues to support even as economy is tough. Planning reform? Management say they are still confident with outlook but also booked a £98mn hit to profits from new safety charges. Investors are worried about the capital flows into London property- one for the chancellor to address?
Cost of living: B&M shares struggled to find a price early doors but eventually opened down 13% on margin warning. Group revenues rose 4.4% but actual selling price deflation compressed margins in general merchandise.
Finally, Experian shares rallied almost 4% after it posted 10% revenue growth in North America, which accounts for two-thirds of group revenue.
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