Summary:
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US stocks make slow start to the week
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Empire State manufacturing index drop to 2 ½ low
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DE30: Lufthansa sinks after cutting profit forecast
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Pound drops to 5-month low vs USD and EUR
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Iran to exceed nuclear deal limit
The opening bell on Wall Street this afternoon has seen some small and steady gains, with the large-cap US benchmarks rising a little from where they ended last week. Last week was an inside one for the S&P500 and after a bright start to the month, the market now appears to be awaiting further cues before embarking on its next sustained move. The Fed rate decision on Wednesday is arguably the most important since January for stock markets, with high expectations for a dovish message leaving plenty of scope for disappointment.
On the data front today, the only release of note is the empire state manufacturing index, which came in far worse than expected. The print of -8.6 was the lowest since October 2016 and well below the +11.0 expected and the prior reading of +17.8. In fact the drop itself was the largest monthly decline on record and this could be seen as flashing a warning sign on the US economy.
In Europe most the indices are mixed, with the DE30 pretty much flat on the day by the cash close. The Deutsche Lufthansa (LHA.DE) is the worst performing DAX member at the beginning of Monday’s session. The German carrier slashed profit forecast for this year citing falling prices in Europe, especially Germany and Austria. The company now expects full-year EBIT to fall in the €2-2.4 billion range and EBIT margin of 5.5-6.5%. The margin was earlier expected to reach 6.5-8%. A full-year loss is expected at the Eurowings unit, Lufthansa’s low-cost airline, as it struggled to compete efficiently with other low-cost carriers like Ryanair or EasyJet. Lufthansa is trading over 12% lower following the first hour of the European session.
Despite refusing to take part in a televised debate yesterday evening, Boris Johnson remains the heavy favourite to be the next Conservative party leader and he received a further boost with news that Matt Hancock is now backing him. The former leadership contender and prominent Europhile has endorsed Boris and with the current field of 6 set to be whittled down to 2 by Thursday before party members will decide the next leader it does look like its now his to lose. The political situation continues to weigh on the pound and this afternoon the currency fell to its lowest level since January against both the Euro and the US dollar.
Last week saw a sharp move higher in the price of crude oil after two tankers were attacked in the Gulf of Oman and there have been further growing signs of tension in the region this morning. Iranian state TV has said that the country will exceed the amount of low-enriched uranium it is allowed to keep under the nuclear deal in a move that will likely draw the ire of the US and several other allies. The current level of 3.67% was set by the 2105 deal between Iran and several world powers in an attempt to restrict its nuclear ambitions but with the US withdrawing from the pact and slapping tariffs on Tehran, the country now seems to be pushing its limits. Oil and Oil.WTI are trading a little lower on the day at the time of writing, by around 0.3%.
