Sunny day in Europe

European indices opened a touch higher and are holding the trend despite a mixed set of results from major banks. Barclays comfortably beat forecasts while Deutsche Bank reported a 65% drop in income threatening to drag down the DAX. Earnings declined for Nordic banks Handelsbanken and Nordea as expenses increased in a difficult market environment while corporate banking shrunk.

US results show first cracks

A flood of results on Wall Street is showing the first cracks in the recent boom story, indicating that a slowdown in the economy may be under way. Particularly telling are numbers from big industrials such as Texas Instruments which not only reported lower results but also said they expect weaker semiconductor demand ahead.

Wall Street analysts are pointing the finger at China arguing that a slowdown in the world’s most populous country is beginning to spill into other markets. Notably the Shanghai Composite Index has declined 27% since the beginning of the year and although for the last two days it has rallied on the back of positive comments from domestic officials the index is now firmly on a declining trajectory. It remains to be seen if the recently announced tax cut programme for private individuals will bear the fruit the government expects to and give the country’s slowing economy a fresh boost by way of increased consumer spending.

No respite for the pound

There is unlikely to be any serious or sustained respite for the pound until Brexit actually happens as the currency is being buffeted daily by threats of a no-deal divorce and rumours of a challenge to Theresa May’s leadership.

The focus next week will be on Chancellor Phillip Hammond’s budget but any effect of his financial plans which could include fewer tax increases than initially expected could be drowned out by the persistent Brexit drama being played out in the background. The pound has slipped 0.22% against the dollar having gained half a percent yesterday but is holding flat against the euro. The euro is continuing to face its own pressures as the European Commission rejected Italy’s budget which is breaching EU deficit targets. The unprecedented move is now taking the EU into unchartered waters as Italy shows no signs of intending to back down.

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