Stocks are lower this morning following weak earning reports

Stocks are lower this morning following weak earning reports 150 150 Realm

European markets started well this morning after global manufacturing PMI data showed improvement, but turned lower following weak earnings reported by major European companies. Investors will also be looking for progress from talks to agree a new coronavirus relief bill in the US.


Global Macro

  • The ISM Manufacturing PMI for the US rose to 54.2 in July from 52.6 in the previous month and above market expectations of 53.6. That was the highest reading since March 2019 as manufacturing continued its recovery after the disruption caused by the coronavirus pandemic. Seven of the 10 sub-indexes registered expansion, up from five in June.
  • Construction spending in the US decreased 0.7% from the previous month to a seasonally adjusted annual rate of USD 1.355 trillion in June of 2020, following a downwardly revised 1.7% fall in May and missing market expectations of a 1.0% growth. It was the fourth consecutive month of fall in construction spending. Spending on private construction dropped 0.7% led by falls in residential (-1.5%), commercial (-1.3%), communication (-1.2%), transportation (-0.6%) and amusement and recreation (-6.2%). Also, public outlays fell 0.7% mainly due to nonresidential (-0.8%).
  • Japan’s economy shrank at an annualized rate of 2.2% in the first quarter of 2020, unrevised from a previous estimate and following a 7.2% decline in the previous quarter. Private consumption, which makes up more than half of the economy, fell 3.0% (vs -11.1% in Q4), while capital spending rebounded 7.0% (vs -17.7% in Q4). In addition, net external demand contributed negatively to the GDP as exports fell the most since the second quarter of 2011 ( 21.9% vs 1.7%) while imports posted the largest drop in 11 years (-18.3% vs -9.3%).
  • The IHS Markit/CIPS UK Manufacturing PMI was revised lower to 53.3 in July 2020, from the preliminary estimate of 53.6 and compared to June’s final reading of 50.1. The latest PMI pointed to the strongest pace of expansion in the manufacturing sector since March 2019 following the further loosening of the lockdown conditions in place due to the coronavirus outbreak. Output growth accelerated to the fastest since November 2017 supported by the sharpest rise in new order volumes since the end of 2018, amid reports of new order inflows starting to pick-up in several markets, including parts of Europe, the US and Asia. At the same time, employment fell for the sixth month running, albeit to the least marked extent since March. On the price front, input costs rose the most in over a year, while output charges also increased. Looking ahead, business sentiment jumped to its highest level in 28 months.
  • On Monday: European stocks rallied boosted by hopes of a COVID-19 treatment after Eli Lilly said it was beginning a phase 3 trial of its experimental drug to see whether it can prevent the virus’ spread in residents and staff in US nursing homes. Earlier, gains were supported by better-than-expected PMI data for the Eurozone, in particular Italy and Spain, two of the most affected countries by the pandemic.  Asian stocks ended mixed as upbeat factory activity data was offset by lingering worries about the relentless surge in coronavirus cases around the world and rising U.S.-China tensions.  US stocks moved mostly higher during trading on Monday, with strength among tech stocks once again contributing to an advance on Wall Street. The tech-heavy Nasdaq jumped to a new record closing high, while the S&P 500 ended the session at its best closing level in well over five months.

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