European markets run out of steam at the end of a strong week

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It’s been a somewhat indifferent end to what has been a strong week for European markets, which has seen a good proportion of last week’s losses disappear, as markets price out the likelihood of further aggressive rate hikes, against a backdrop that suggests prices may be slowing much faster than expected.


The CAC40 has been one of the best performers, with gains of over 3% this week, followed by the DAX and then the FTSE100, which is up on the week close to 2.5%.

While last week’s equity market declines came against a concern that the Fed would overtighten into a slowing economy, this week’s inflation data has reinforced the case that deflation might be the bigger concern.

Burberry shares have underperformed after reporting an 18% rise in Q1 sales, pushing quarterly revenue up to £589m, which was below consensus forecasts. Mainland China saw an increase of 46%, while south Asia Pacific rose 39% and Japan 44%. A poor performance from its US markets saw an 8% decline and it is this that appears to be weighing on the share price. On guidance Burberry left it unchanged saying that they expect to see low double-digit revenue growth for full year 2024. 

ITV shares have slipped back after the broadcaster decided not to pursue an acquisition of All3Media, the company behind such productions as Fleabag, Gogglebox and Call the Midwife. The company is currently jointly owned by Liberty Global and Warner Bros Discovery, and would be considered a significant enhancement to its own ITV Studios production capability. The decision not to pursue a deal may well have been on the grounds of cost with the company citing strict financial criteria and disciplined capital allocation framework for its decision not to proceed.    


US markets opened modestly higher, helped by a strong start to earnings season from the US banking sector, which is expected to see US markets close at their highest levels since April last year.

For the last few weeks, we’ve seen various notes low-balling expectations around the latest set of bank earnings numbers. Despite this the shares have still seen decent gains since the lows back in March in the wake of the US regional banking meltdown, although JPMorgan has been the best performer since those lows, with Citigroup and Wells Fargo lagging behind.  

Wells Fargo was first out of the gate today with Q2 revenues coming in at $20.53bn, and profits of $1.25c a share, or $4.9bn, both coming in ahead of forecasts. In a sign that lending is starting to slow, total average loans came in below expectations at $945.9bn, while provision for credit losses came in at $1.71bn, a big increase from last year’s $580m. Net interest income was higher than expected at $13.2bn, with the bank raising its target for the full year, as higher rates helped to boost margins.

JPMorgan Chase was next, with the shares already at 16-month highs reporting record Q2 revenues of $42.04bn, blowing through expectations of $39.34bn, and profits of $4.75c a share, or $14.5bn, an increase of 67% a year ago. Consumer banking was a notable outperformer with banking & wealth management performing really well, up 68% on revenues. On a quarterly basis card services and autos revenues slowed from Q1, but still higher year over year. The corporate and investment bank was more of a mixed bag, with FICC revenue down 3% and equities down 2.5%. The bank also raised its guidance for net interest income to $87bn, as the gap between loans and deposit margins blew out even further. Quite simply JPMorgan has more deposits than it knows what to do with, and is the biggest winner from the March regional banking crisis.      

Finishing up with Citigroup, the bank reported Q2 revenues of $19.4bn and profits of $1.33c a share or $2.9bn. The decline in revenues was down 1% from a year ago and a 9% decline in Q1, while profits fell 36% from $4.5bn. FICC revenue fell 13% to $3.53bn, while equities trading fell 10% to $1.1bn. Operating expenses were higher by 9% to $13.57bn, with credit losses rose to $1.5bn, a 77% rise on Q2 last year. Nonetheless there were few surprises in today’s numbers with Citigroup reaffirmed its full year forecasts of $78bn to $79bn in revenue, and expenses of $54bn.

NVidia shares have continued their impressive move higher after a broker rerating on its share price target to $540, on the basis of expectations around higher revenue growth for its market data centre operations. Reports that the chipmaker might look at taking a sizeable stake in the ARM IPO are also driving sentiment.


Despite today’s modest US dollar rebound it’s been a dreadful week for the greenback, sliding to its lowest levels in 15 months, and its worst week since November last year, after weaker than expected inflation numbers saw markets pare bets on the number of rate hikes that we are likely to see this year.  

Last week’s Fed minutes suggested that the Federal Reserve would press on with another 2-3 rate hikes by the end of this year. This week’s inflation numbers have thrown a lot of shade on that view and while Fed policymakers like Christopher Waller would like us to believe that further rate hikes are coming after July, it would strain credibility if the Fed were to continue hiking when US PPI is already within touching distance of heading into deflation territory.

The pound looks set to post its best week against the US dollar since November last year, ahead of next week’s CPI numbers which are expected to see inflation slow modestly to 8.2%, and reinforcing the expectation that we might see a 50bps rate hike from the Bank of England when they meet in August. This week’s UK data while disappointing, was still slightly better than expected given the challenges being faced by the squeeze on consumer incomes. There could be a silver lining next week, with particular focus on the PPI numbers which could fall into deflation territory, and tend to be leading indicators of future price trends. If these are weak there is a chance that any August rate hike may well be the last one we see, if we see a sharp fall off in July CPI when those numbers get released in mid-August.   


The sharp fall in yields and the US dollar has seen gold post its best week since April, as markets take the view that the Federal Reserve will be done when it comes to raising rates, after their next meeting at the end of this month. This was reinforced by today’s weakness in US import and export prices in June which dropped further into negative territory on a year-on-year basis.

Crude oil prices look set to complete their third successive weekly gain pushing above $80 a barrel, as concerns over tighter supply help to underpin prices. Concerns about weaker demand appear to be being put to one side for the time being with the weakness in the US dollar also providing a tailwind for firmer prices.  


UK banking stocks have been finding favour in recent days off the back of comment from the BoE over the resilient nature of the UK economy despite the pressures seen from rising interest rates. Although leverage does pose some threats, these appear to be less severe than had been priced in. CMC Markets’ proprietary basket of seven UK banks posted its second consecutive session of meaningful gains on Thursday, with one day vol coming in at 25.9% against 22.4% for the month.

Cryptos were thrown back into the spotlight on Thursday after Ripple won a high profile legal case against the SEC. Whilst the underlying price of Ripple added around 60%, it was the closely correlated Stellar Lumens that stood out in terms of price action. Initial gains were even more pronounced with one day vol printing 459.23% against 114.69% on the month.

Soybeans saw a significant correction off the back of crop reports on Wednesday but investors clearly felt that this presented something of a buying opportunity. The underlying recovered all of those recent losses by last night, with one day vol standing at 38.79% against 33.63% on the month.

And that soft wholesale inflation reading from the US yesterday kept the greenback under pressure. It was the AUD/USD pair that saw the most elevated activity, revisiting levels not seen since February. With inflation in Australia remaining stubbornly high, interest rates cold yet have to climb further. One day vol printed 14.32% against 10.75% on the month.

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