Bloomberg Report Europe Session: 5 Things to Start Your Day
Good morning. A couple of big U.S. tech companies had mixed quarters, Boris Johnson got his first big knock-back as British leader, Iran tensions aren’t disappearing and Mario Draghi is shouting for help. Here’s what’s moving markets.
Last night was one of the mixed fortunes for big tech. Google-parent Alphabet Inc. jumped after hours after reporting revenue that beat expectations, along with a plan to repurchase $25 billion of stock, the biggest buyback in its history. Meanwhile, Intel Corp. agreed to sell the majority of its smartphone-chip business to Apple Inc. in a deal valued at $1 billion, while beating on second-quarter profit. The downside surprise came from Amazon.com Inc., which said that one-day delivery is more costly and complicated than expected, driving up expenses.
Thanks, But No Thanks
After spending the past few days talking up his hard-line approach to Brexit, Boris Johnson’s already been rebuffed by the European Union. The new U.K. prime minister told European Commission President Jean-Claude Juncker by phone that the Withdrawal Agreement would have to change for it to pass Parliament, but Juncker said it was the best and only deal possible. With Johnson looking like he’ll need all the help he can get, here’s a recap of who’s in his band.
Asia Slips, Iran Tests
Asian stocks mostly slipped on Friday, following the U.S. market’s mood, as investors digested corporate results in addition to macroeconomic factors like the ECB meeting. Oil was steady, but set for a weekly increase, with more hawkish news from Iran after the country test-fired a medium-range ballistic missile earlier this week that travelled 1,000 kilometres, according to a CNN report. U.S. Secretary of State Michael Pompeo says he would “happily” go to Iran to speak to its people about the actions of the government.
Louder and Louder
European Central Bank boss Mario Draghi is shouting louder than ever for help with the economy, but still no one is listening. The euro is now back to where it started before the European Central Bank’s policy announcement Thursday, having gained despite Draghi’s comment that the euro area’s outlook is becoming “worse and worse” raising the curtain for another round of monetary stimulus as soon as September. Some commentators had expected an even more dovish outlook.
U.S. second-quarter GDP is forecast to grow at its slowest pace since 2016, ahead of an expected rate cut from the Federal Reserve next week. Russia’s central bank is expected to cut its rate on Friday, while also signalling more easing. Swiss consumer goods giant Nestle S.A. reported first-half sales that missed estimates and U.K. telecoms group Vodafone Group Plc updates later.
Carry trade investors should raise a farewell glass to Mario Draghi. The ECB President setting the stage to lower interest rates deeper into negative territory in September means it will be even cheaper to borrow the euro and use it to buy higher-yielding securities. A gauge of the difference in borrowing costs between it and funding rival the yen was just off a one-year low Friday. Borrowing in euros has been a lucrative approach. A strategy that sold euros and bought eight currencies in a Bloomberg emerging-market carry trade index has gained an average annualized 5.5% since the end of 2017, compared with a loss of 2.2% for a yen-funded strategy, according to data compiled by Bloomberg. Though both trades had almost the same returns from interest income, strength in the Japanese currency weighed on the performance of yen borrowers. While economists forecast that the yen will rise more than 1% by year-end — less than the 3% expected for the euro — traders could still be wrong-footed during market turmoil. The yen typically climbs thanks to its safe haven status when volatility spikes, which means carry trade investors might continue to see the euro as the safer bet for their borrowings.
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