Equity Market Handover: Car shares lead Europe’s reversal

Wall Street, Asia-Pacific and European shares may be splitting along trade-war lines


Stock market snapshot as of [24/6/2019 3:06 PM]

  • Wall Street, Asia-Pacific and European stock markets could be splitting along trade-war lines at the start of a week that will be crucial for deciding what happens next in Washington’s dispute with Beijing
  • The absence of confrontational rhetoric over the last fortnight ahead of G-20 talks between U.S. President Trump and China’s President Xi may have enabled a higher ceiling for sentiment. Nerves remain though
  • U.S. indices opened positively. Markets from Sydney to China itself saw a similar mood
  • The acrimonious collapse of a putative U.S.-China consensus in May is being somewhat offset by expected policy accommodation. Yet with a palpable sense of realism about what the two Presidents can achieve in two days, downside could be limited, regardless of the outcome
  • The U.S. dollar’s tumble through significant technical markers (e.g., the Dollar Index’s 200-day moving average) also cushions markets that benefit from cheaper dollar financing
  • Europe is not at this party though. A conspicuous move in the opposite direction is partly down to possible U.S. tariffs on EU cars that Donald Trump has toyed with for more than a year

Corporate News

  • A painful reminder of what’s at stake came with Daimler’s third profit warning in about six months. The impact is extending the underperformance of European car shares even further
  • Car makers are pressured from many sides, including by overcapacity, costs for righting alleged emissions wrongs, electric R&D and more. Monday’s fall suggests tariff-risks on top of those woes aren’t fully priced yet
  • Daimler has traded as much as 5% lower, whilst STOXX’s Automobiles index slumps over 1%. Utilities and staples rise as befits a need for safety
  • After Brent and WTI crude oil contracts advanced between 8% and 12% in just over a week, even oil shares are adrift as the black stuff takes a rest, despite the lack of let-up in Iran-U.S. tensions
  • Treasurys join gold in rallying with U.S. shares, whilst the yen is only offside as it consolidates another percentage point gain against the dollar so far in June. The everything rally looks increasingly unsustainable
  • U.S. pharma giant Bristol-Myers Squibb, misses out for now. It slides 4% after filing for EU approval to take over biopharma Celgene for $74bn. European regulators have indicated oversight isn’t being fast-tracked. Celgene also falls 4%

 

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