Originally published by CMC Markets
European stock markets are in the red as trade concerns and political uncertainty in Germany are prompting traders to dump equities.
Europe
The ongoing trade standoff between the US and China has triggered a wave of selling, as dealers are fearful the tariffs could impact economic growth and bring about a slowdown.
German chancellor Angela Merkel and Horst Seehofer, the head of the Christian Social Union (CSU), are at loggerheads over migration policy. Mrs Merkel needs the CSU to prop up her government, and traders are fearful the issue could break the relationship between the CSU and the Christian Democratic Union (CDU).
Vedanta Resources (LON:VED) have jumped on the back of the takeover approach from Anil Agarwal. Mr Agarwal is the founder and majority shareholder in the firm, and he is offering 825p per share for the remaining 33.5% stake in the business. The motivation behind the takeover is to simplify the company, and there is now a feeling the London listing is no longer needed. The stock is up 25.7% at 815p.
Micro Focus (LON:MCRO) shares are higher today after the company revealed plans to sell off its SUSE software firm for $2.5 billion. The firm will pay down debt and boost shareholders returns with the funds raised. Micro Focus issued a profit warning in March, and today’s announcement that the firm is slimming down and returning more funds to shareholders has lifted investor sentiment. The share price has been rising since March, and if the bullish move continues it could target 1,500p.
Tesco (LON:TSCO) and Carrefour (PA:CARR) have agreed to combine buying power and secure lower prices from suppliers. The British supermarket sector has been under major pressure in recent years because of the rise in popularity of Aldi and Lidl. The intense price war among the British supermarkets has prompted the deal, and the aim is to boost margins and compete with the deep-discount retailers.
US
Equity benchmarks are lower today as trade concerns are weighing on sentiment. Investors are fearful the trade dispute between the US and China will dent global growth. Washington DC are also engaged in a trade standoff with the EU and Canada, and since no sides are willing to back down, we are inching closer to a trade war. The US are due to impose tariffs on $34 billion worth of Chinese imports on Friday, and should that go ahead, it might put even more pressure on stocks.
The ISM manufacturing PMI report in June ticked up to 60.2 – its highest reading since February, while economists were anticipating a reading of 58.4. The solid update points to a robust manufacturing sector, which bodes well for the economy.
Tesla (NASDAQ:TSLA) shares are in demand after the company hit its production target. The firm set itself a target of producing 5,000 Model 3 cars before the end of the second quarter, which it achieved just before the quarter finished. This is a sign that the company are capable of producing electric cars on mass, and this has lifted investor confidence.
FX
The US dollar index is resuming its wider upward trend. The Federal Reserve will release the minutes from the latest meeting on Thursday, and traders will be paying close attention for an indication of how many more interest rate hikes we can expect this year.
EUR/USD has been hit by the firmer US dollar, while mixed economic updates from the eurozone have also played a role in the euro’s weakness. The unemployment rate in the currency bloc dipped to 8.4% from 8.5%. The German manufacturing sector remained unchanged on the month, while the French manufacturing sector grew at a slower pace. The eurozone has been producing mediocre economic indicators recently, and this is also holding back the euro.
GBP/USD has also been hurt by the greenback, and the respectable UK manufacturing data couldn’t prevent the drop in the pound. In June, the UK manufacturing PMI report ticked up to 54.4, while economists were anticipating 54.
Commodities
Gold is under pressure again from the stronger US dollar .The metal has been in a downward trend since April, and if the bearish trend continues it could target $1,236. Gold traders will also be keeping an eye on the Fed minutes on Thursday as it could give us a clue about future monetary policy.
WTI and Brent crude oil are lower today after President Trump suggested that Saudi Arabia should increase its oil output. The relatively high oil price is hurting business due to higher costs. The US and Saudi Arabia have a close relationship and traders are selling oil as the Saudi’s might boost output to keep the US onside.