Europe Remains Upbeat Despite US China Tensions

European bourses are pointing to a mildly positive start after hopes of more US stimulus and upbeat US earnings overnight are overshadowing rising Western tensions with China.

Charts (6)

European bourses are pointing to a mildly positive start after hopes of more US stimulus and upbeat US earnings overnight are overshadowing rising Western tensions with China.

Even as the Republicans and Democrats remain far apart on how much to spend in this next round of stimulus, the markets are optimistic than an agreement will be reached sooner than that later. The prospect of both monetary and fiscal support taps running at the same time is keeping the mood in the market broadly upbeat. 

Tesla’s fourth straight quarter of profits with EPS of $2.18 when analysts had forecast a loss, on revenue of $6.04 billion versus $5.37 billion expected. With 4 quarters of profit Tesla now qualifies for the S&P 500 suddenly making the stock accessible for many big funds which previously had to avoid it. The stocks traded 4% higher in the grey market with its phenomenal rally set to continue.

US – Sino tensions rise
Geopolitical tensions continue to keep any gains in check as the orders the Chinese consulate in Houston to shut by Friday on spying accusations, whilst China plans to follow suit in the tit for tat moves which will see the US consulate in Wuhan closed.
The overriding fear here is that Trump will call off the Phase one trade deal as tensions with China escalate. Despite the tensions, the US Dollar continues to hover close to its all-time low with its eyes on the stimulus prize, inflation hedge gold also remains close to 2011 highs at $1870.

German consumer confidence jumps
The Euro is continuing its run higher as it enjoys its popularity boost brought about by the EU Recovery Fund. Data showed that consumer confidence in Germany jumped to -0.3, up from -9.4 in July and smashing expectations of -5. The surge in consumer sentiment is giving investors yet another reason to buy into the Euro. Data is the region surprising to the upside, flare ups in covid cases are being brought quickly under control and both the fiscal and monetary stimulus taps are turned on. What’s not to like?

US jobless claims improvements set to stall
Looking ahead US jobless claims will be in focus. Expectations are for claims to remain unchanged, stalling at 1.3 million. Continuing claims are expected to edge slightly lower to 17.067 million, down from 17.3 million. Whilst jobless claims have been steadily improving, the fear is rising that the numbers could soon start to deteriorate again as parts of the US sunbelt start to re impose lockdown measures to bring the rising coronavirus numbers under control. The US reported another 70,000 new daily cases on Wednesday.

FTSE Chart


More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.