Blog

European markets remain under pressure today after the Turkish markets were hit by a wave of selling last week.  The currency markets have pushed the Turkish Lira to record levels above 7 to the US Dollar as concerns about the economic policies of Pres Erdogan reached boiling point. This weakness has now begun to flow into the European financial sector as the ECB and markets are concerned about some European banks that have a large exposure to the Turkish economy.

Volatility is sharply higher in European markets today as weakness in the Turkish and Russian currencies flowed into more mainstream European markets. Concern from the ECB about financial exposure to the Turkish economy from some of Europes banks BBVA (Spanish) Unicredit (Italian) BNP Parisbar (French) has seen the EUR weaken sharply and stock indices fall . Sanctions placed on the Russian economy by the US has caused some further volatility in Russian markets and hurt investor sentiment even more.

European investors continue trade in a cautious fashion with growing concerns for economic growth coming from the trade skirmish that continues to escalate between the US and China. Crude oil prices fell sharply last night as China confirmed that it would respond to the US tariffs and match dollar for dollar on a long list of imports. This has hurt the price of energy companies across the region. Investors are also watching the weakening of the Turkish Lira and the increase in Turkish interest rates to above 20% as the economy struggles for momentum. The US has also imposed further tariffs on Russia which has caused a further fall in the Rouble and the Russian stock index.

Investors continue to focus on positive corporate earnings both in Europe and in the US , and trying to ignore any negative sentiment from the growing trade issues. Asian markets were lower as Chinese indices continued to react negatively to the trade war. European indices are all trading higher  with the FTSE boosted by the very weak GBP , at 7776 up 0.84% , the DAX is at 12681 up 0.25% , the MIB is at 21889 up 0.17% , and the CAC at 5525 up 0.08%. 

European investors have reacted positively to the continued strong US corporate earnings and economic data while remaining wary of any escalation in the global trade war between the US and China and other allies. The auto sector was one of the strong sectors on continued hopes that high tariffs will not be placed on exports to the US.  In the banking sector Commerzbank reported a higher profit than expected but said costs would be higher next year and the stock price fell. Italian bond market is also recovering from the correction levels seen in previous months and this is improving sentiment for Italian banks.

Trade issues were back in investors minds today after China announced that they will retaliate to proposed tariffs by the US . Comments in Chinese news over the weekend suggested that China is prepared to take any pain that may eventuate in this trade war which they view as a threat to their economic sovereignty. Pres Trump meanwhile suggests that the tariff threats were working and that the strategy was forcing China to negotiate a better deal. Other officials have suggested that no talks are taking place at the moment.

Investors are seeing some weakness in early trade in Europe with markets waiting on the US Fed meeting decision later today. Strong earnings from Apple overnight has helped sentiment in the tech sector but trade tensions have risen again as Pres Trump suggested that he will increase the tariff rate on US$200bn of Chinese imports from 10% to 25%.

European investors have seen some stellar quarterly profits from Credit Suisse with net income rising 114% y/y and British Petroleum profit rose by 300% and it increased the dividend. Stock indices look positive and the economic numbers continue to be solid. Eurozone GDP has been released this morning and showed at 2.1% y/y (2.2% exp) with the rising energy costs boosting prices.

European stock investors are on track for the best week in the past four months after the trade truce between the US and Europe. The auto sector which had been hit very hard on threatened tariffs has rebounded sharply to be one of the best performed. Latest prices have the DAX at 12879 up 0.55% , the CAC at 5496 up 0.30% , the MIB at 21920 up 0.26% , and finally the FTSE at 7703 up 0.53%.

The ECB holds the interest rate meeting today and the market expects that interest rate settings will remain the same at -0.40% , and that the QE stimulus settings are expected to remain the same after they announced last month that the stimulus will be wound down by the end of the year. The potential for a trade deal to be finalised between the US and Europe will improve sentiment which should help stock prices.