Signs of exhaustion in equity markets

Despite some upbeat corporate earnings, the fourth attempt to vault the 6660 metric on the UK benchmark index has once again amounted to nothing. The unconfirmed rumours of a German debt downgrade have also contrived to apply brakes to the upward trajectory.

European markets

Assurances from the China premier yesterday with respect to Chinese growth prospects was something of a panacea to the disappointing HSBC manufacturing PMI, which fell from 48.2 to 47.7 in July. Investors shrugged it off, choosing to focus on the more positive macro and corporate releases of the day.

Year-to-date easyJet has gained 91.5%, and today’s earnings release supports the huge buying interest in the airline company. Boosted by capacity increase and increased seat-revenue growth, the company saw third-quarter revenue rise 10.5% to £1.14bn. Some profit-taking saw the share price pare back some intraday gains, but still managed to close up 4%.

Arm Holdings took a leaf from Apple’s book in delivering better sales and profits than forecast. Despite several broker upgrades, the stock failed to make much headway and closed down over 1%.

The prize for greatest improvement went to the eurozone today, as both manufacturing and services output shredded expectations coming in at 50.4, ahead of the 49.1 consensus. This will be likely to lend a positive slant to the quarterly GDP figures and provide some relief for the policymakers.

US markets

Record intraday highs were once again recorded in the key US indices, with the S&P 500 coming within touching distance of the 1700 level and the Dow Jones braving the 15,600 level for the first time ever. For the most part, investors have seemed happy to accept any beat on what are tempered expectations in the corporate earnings suite.

Again, it’s the bellwether stocks that are failing to impress the markets, with Caterpillar posting both earnings and sales below forecasts as well as providing a fairly downbeat assessment for the year. Following the announcement of a 43% decline in net income, the mining equipment-maker cut its full-year profit forecast for the second time this year. 

A higher-than-expected jump in new home sales for the US – the biggest surge in five years – was greeted initially with euphoria, with sales of 497,000 recorded in June against the expectation of 484,000. Greater examination showed that May’s data was revised downwards from 476,000 to 459,000, and thus neutralised the bonhomie.

Social media giant Facebook will report after the bell. The stock price has had difficulty gaining any traction at or through the $27 per share mark since mid-May. Expectations for earnings are possibly on the optimistic side, with revenue expected to grow some 37%. Mobile revenue will be of key interest to market participants, with the consensus view that 33% of the company’s total ad revenue will derive from this area.

The Dow is ticking lower by 20 points on the day, currently at 15,547.

FX

The euro established a new four-week high against the dollar on improved trader sentiment, after the better-than-expected eurozone PMI numbers. The data certainly indicates that the economy may be turning a corner, yet, coming off such a low base, perhaps the celebration is de trop. Given how pivotal exports are to the general recovery, the strong euro does not necessarily invite growth sustainability.

Commodities

The price of gold is off 1.4% as traders lock in their profits from the recent rally. The metal has made advances in the past four trading sessions and remains supported by the $1325/oz level.  

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