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Daily Briefing – Tuesday, July 4, 2017

US

After beginning the month at a record high, with the Dow Jones climbing 0.61% on financial and energy shares, a technical glitch incorrectly saw Amazon shares lose 80% of their value alongside other Nasdaq equities – closing the index at minus half a percent for the day. However, what has traders stumped is the schizophrenia developing around economic data: yesterday’s Markit manufacturing PMI saw a worse than expected 10th point drop to 52 (an 8-month low), whereas the ISM number 15 minutes later indicated a 3-point rise to a 3-year record high. Construction spending, prices paid and auto sales also missed expectations for the 4th month in a row. Luckily, today’s July 4th celebrations will enable investors to gather their wits.

 

Europe

European equities capped a 4-day losing streak and gained on yesterday’s trading, led by Italy’s FTSE MIB (2.08%). The FTSE gained nearly a percent on energy and mining shares thanks to the Chinese economic rebound and hawkish comments from the BoE. Manufacturing PMIs were weak in France and Italy, but added 0.3 points in Germany and across the union, where they were at a 6-year high. The UK figure was 2 points down to a 3-month low of 54.3, and Eurozone unemployment disappointed traders by remaining static at 9.3%. Also in Britain, the Association for Financial Markets in Europe has warned that Brexit could cost UK banks $17 billion in relocation costs if the EU forces them to set up operations on the continent to continue having access to EU markets. Japanese PM Shinzo Abe, on the other hand, is expected to sign a free trade agreement in Brussels on Thursday as Trump arrives to bash heads at the G20 summit there.

 

Asia

Asian stocks closed in the red this morning in spite of the opening of the China-Hong Kong trading link to bonds. Despite the opening fanfare, markets remained unimpressed, since unlike the stock-market link, the bond link is one-way only – allowing foreigners to invest in China but preventing Chinese investors from investing in Hong-Kong listed bonds to prevent capital outflows. In Korea, the Kospi was down 0.6% after North Korea’s latest missile firing into Japanese territorial waters – an event that also sent the Yen up 0.41%. Yesterday’s consumer confidence number from Japan posted an unexpected drop to 43.3. Australia’s S&P/ASX200 was the odd man out, rising 1.75% on financials, energy and materials. A weak AUD was the result of the overnight decision to keep interest rates on hold at 1.5% due to concern over weak consumption, income growth and household debt.

 

Shares

Amazon is severely underpriced this morning following its technical crash yesterday that is being ascribed to “improper use of test data”. The crash affected the entire spectrum of Nasdaq tech stocks, triggering trading halts across the board. Traders are expected to rush into the asset when markets re-open in preparation for Monday’s Amazon Prime Day Sale, which in the past has outperformed even Black Friday sales and pushed the equity upwards. Meanwhile, several states south, Tesla’s announcement yesterday of its July 28 release of its new consumer Model 3 (2 weeks ahead of schedule) helped buoy the asset after shares fell in early morning trading on the announcement that battery shortages were impeding deliveries of S & X models. Q2 sales have been missed for the 3rd time in a row. Microsoft, which seems to be downwardly inclined for the past month, has announced a marketing reorganization, which would include layoffs and a refocusing on cloud services for enterprises. And finally, GE shares received a huge boost as trading ended yesterday after it completed its buyout of Baker Hughes, making its new subsidiary the 2nd largest oilfield service provider in the world.

 

Commodities

WTI yesterday capped an 8th straight session of gains thanks to the decline in US production – its longest winning streak since January 2010. Both blends are currently at a 4-week high, after major US producers joined US Pres. Trump in calling for relief to Russian sanctions that threaten energy projects around the world. . And wheat futures are at a 2-year high, as dry weather threatens crops and wheat-planting acreage plummets to a 98-year low. Gold may be recovering from its 2-day drop on US dollar strengthening and equities pandemonium. The metal posted its worst 1-day performance in 8 months as central bankers begin to show signs of hawkishness. On the other hand, growing Chinese-US tensions may contribute to a recovery.

 

Today’s Events

8:30 AM GMT UK: Construction PMI, followed at 10 by the BoE’s inflation report
9 AM GMT EU: PPIs
1:30 PM GMT Canada: Markit Manufacturing PMI
8:30 PM GMT API Weekly Crude Oil Stocks
0:30 AM MT (+1) Japan: Markits Services PMI
1:45 AM GMT (+1) China: Caixin Services PMI

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