Markets Showing Some Signs of Stabilizing

Rhetoric between the U.S. and China remains antagonistic.  The U.S. officially declares China a currency manipulator.  China asserts U.S. policies are protectionist, yada, yada, yada.   Initially, the markets traded lower across the board.   However, the PBoC helped alleviate some concerns by setting the Yuan reference price stronger than CNY 7/$.   Also, the nation announced a CNY denominated bond sale in Hong Kong.

The Nikkei traded lower by about 3% shortly after the open.   It then made some steady progress erasing well over 2% of its losses.   This was prompted by a weakening ¥ which regained the 106 level and briefly breached 107.  This is one of the signs of weakening risk-off sentiment.  Shanghai ends the day paring about half of the day’s loss.  India trades well as do some of the peripheral markets that overlap with Europe.

Australia slid more than 2% with the poor sentiment for the resource sector weighing.  The RBA is leaving its benchmark rate unchanged at 1%, as expected.  While Gov. Lowe indicates the central bank is prepared to lower rates, the tone was less dovish than some traders anticipated.  The “Aussie” generally strengthened over the course of the session.  This could also be another sign of less pessimistic sentiment.

Sectors in Asia end the day to the downside but well off lows.   Industrials, real estate and IT are off c. 1%.

The European markets are attempting to stem the tide.  Following a flattish start, they are currently higher c. %.  Most sectors advance.  Media, personal goods, construction and autos are better by at least 1%.  Energy has lagged all session.

Debts markets are seeing some interesting action.  Most of the EU core yields continue to fall this morning.  However, the US 10 yr. yield is higher by c. 4 basis points.

Corporate Snippets

• Softbank’s -2.9% Q1 release had some disappointing details.  The Operating Income was a touch light of estimates as was the dividend.
• Tencent -1.0% is conducting talks with Vivendi +5.8% to acquire up to a 10.0% of Universal Music Group.  Vivendi says negotiations are preliminary adding the potential for Tencent to double the holding down the line.
• Renault +3.3% and Fiat Chrysler +2.6% are being driven higher by merger speculation.
• Rolls Royce -2.9% is suffering significant cash flow drain as the result of delayed aircraft deliveries from both Airbus % and Boeing.  H1 underlying negative Free Cash Flow is £429m which Bloomberg indicates is c. 25% more than the Street was expecting.
• Deutsche Post +4.5% delivers strong Q2 numbers: Both revenues and EBIT are better than consensus.  The company is raising the bottom end of its FY19 earnings guidance.  It notes the trade war impact but appears to be navigating the issue better than other global logistic peers.
• IGH’s -1.3% revenues for the H1 are inline with expectations.  The shares are lower due to concerns about business travel.  The company notes a slowdown in China & Hong Kong.  Chinese Q2 RevPAR declined 0.5%.

On Our Side of the Pond

• Mallinckrodt announces the “suspension” of its specialty generics spin-off.
• Plenty of U.S. earnings due this today including Disney after the close.
• Keep in mind Canada reopens post its three day weekend.  It will need to play catch down.

Markets & Macro