By David Madden (Market Analyst at CMC Markets UK)
European stock markets have sold-off this morning as dealers are re-thinking their previously dovish forecasts for the Federal Reserve. At the start of the month, some traders felt the Fed would cut rates in July, and again at the back end of the year, but some investors are adjusting their predictions for the US central bank in light of last week’s respectable non-farm payroll report. The Fed might adopt more neutral language in order to temper exceptions. BASF, the German chemicals giant, issued a profit warning over trade concerns, and that has added to the wider sell-off, as the group is seen as barometer for global demand.
Ocado had a solid start to the year as the company posted a 10.5% increase in first-half adjusted revenue. The fees from solutions partners surged by 36%, while the retail revenue edged up by 9.7%. The group spent years developing its business model, and now various partnerships they have struck up, are paying off. Earnings dropped by over 46%, but the fire at the Andover site was blamed for the decline in profit. The best thing about the Ocado update was the outlook. Management are ‘excited about the future’ and the group have the capacity to sign more deals in other countries too. The stock hit its highest level since late May, and if the bullish run continues it might retest the 1,400p region.
Micro Focus International shares are in the red as first-half revenue dropped by 5.3%, and the group maintained its full-year outlook that annual revenue will fall by between 4% and 6%. The firm confirmed that adjusted earnings margin ticked up by 2.8% to 40%, and the group said it remains on track to complete in transformation programme by 2020. Last week, the stock rallied to its highest level since late April, and now we are seeing a little pullback from the recent highs.
Bovis Homes issued a positive trading statement. Home completions increased by 4.2% and the average selling price ticked up by 2.1%. The group said it sees strong demand despite the constant chatter of Brexit uncertainty. There was a sizeable increase in the firm’s cash position and it anticipates first-half profit will improve.
The rebound in the US dollar index continues and it has put pressure on EUR/USD. Italian retail sales dropped by 0.7% in May, while economists were expecting an increase of 0.2%. A slide in consumer appetite is worrying as it suggests that people are less willing to spend money, which would put pressure on an already fragile economy.
GBP/USD has been hit by the firmer US dollar, and the Brexit woes are adding to the negative move too.
Levi Strauss will be in focus today as the company will release its second-quarter figures after the closing bell. The company listed on the stock market in March, and since then the stock has largely traded sideways. In March, the group posted a 7% rise in first-quarter revenue to $1.43 billion – which was right in the middle of its projections. The group maintained its full-year outlook, and traders will be keen to see if that forecast is kept.
We are expecting the Dow Jones to open 134 points lower at 26,672 and we are calling the S&P 500 down 15 points at 2,961.
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