July 16: European stock markets pushed higher on Tuesday, while the pound hit the lowest level versus the dollar in more than two years on Brexit deadlock.
Wall Street stocks, which had set new records on Monday as an expected Fed interest rate cut continued to fuel optimism, mostly slipped as the earnings season entered full swing.
The pause in the Wall Street rally came despite top banks JPMorgan Chase, Goldman Sachs, and Wells Fargo beating earnings expectations, as did consumer and medical goods firm Johnson & Johnson for second quarter earnings.
“The takeaway from the subdued response to the earnings news is that the good earnings news was already priced in,” said market analyst Patrick O'Hare at Briefing.com.
He pointed to a drop in JP Morgan's shares in pre-market trading as the bank cut its forecast for net interest income — the difference between the interest rates it charges consumers for loans and the interest it must pay for deposits.
“The post-report weakness in an industry behemoth like JPMorgan Chase has taken some wind out of the market's sails,” said O'Hare.
The blue-chip Dow was marginally higher in late morning trading, nearly breaking the 27,400 level for the first time. But both the broader S&P 500 and tech-heaving Nasdaq Composite dipped.
Corporate profits are expected to be broadly lower owing largely to a global slowdown and trade war between the US and China.
A Chinese official on Tuesday rejected claims from US President Donald Trump that Beijing is being forced to make a trade deal because of its slowing economy, as the two sides prepare for more talks.
US Treasury Secretary Steven Mnuchin on Monday said that top American and Chinese trade negotiators were due to speak by telephone in the coming days, but no face-to-face talks have been scheduled yet.
– Concerned about complacency –
Dealers are also keeping an eye on Beijing to see if it unveils any economic stimulus as data on Monday showed second-quarter growth at its weakest pace for almost three decades.
“We are concerned about complacency as investors seem to believe the Fed will save the day, the US-China trade dispute will be resolved relatively soon and massive China stimulus will boost global growth,” said Bob Doll at Nuveen Asset Management.
“We think this combination is a tall order. As a result, market risks lean more to the downside.”
Asian equities closed mixed, with investors taking a breather after a recent rally.
European shares ended the day higher as they got a boost as the euro and pound fell against the dollar, which favours exports.
“European markets are outperforming their US counterparts today, as the recent impact of a weakening dollar begins to unwind,” said Joshua Mahony, senior market analyst at online trading firm IG.
The pound slumped to $1.2397, the lowest level since April 2017, as Brexit worries also weighed on the unit.
The euro climbed to 90.48 pence, the European single currency's highest level versus sterling since January.
“Unfortunately, traders are finding it hard to look past no-deal risks or at the very least a delay and hard Brexit, which continues to weigh on the currency,” said Craig Erlam, senior market analyst at Oanda trading group.
The pound slid despite official data showing that Britain's unemployment rate at 3.8 percent in April, the lowest level since 1974.
– Key figures around 1530 GMT –
- London – FTSE 100: UP 0.6 percent at 7,577.20 points (close)
- Frankfurt – DAX 30: UP 0.4 percent at 12,387.34 (close)
- Paris – CAC 40: UP 0.7 percent at 5,614.38 (close)
- EURO STOXX 50: UP 0.5 percent at 3,519.70
- New York – Dow: UP less than 0.1 percent at 27,362.92
- Tokyo – Nikkei 225: DOWN 0.7 percent at 21,535.25 (close)
- Hong Kong – Hang Seng: UP 0.2 percent at 28,619.62 (close)
- Shanghai – Composite: DOWN 0.2 percent at 2,937.62 (close)
- Pound/dollar: DOWN at $1.2406 from $1.2516 at 2100 GMT
- Euro/pound: UP at 90.41 pence from 89.95 pence
- Euro/dollar: DOWN at $1.1216 from $1.1258
- Dollar/yen: UP at 108.28 yen from 107.87 yen
- Brent North Sea crude: UP 20 cents at $66.68 per barrel
- West Texas Intermediate: DOWN five cents at $59.53 per barrel