Slow start for July, as AstraZeneca drags on FTSE100

Europe

It’s been a bit of a snoozy start to July for European markets with an initially positive European open giving way to a more mixed session, with US markets only opening for a short time ahead of the US Independence Day holiday.

The FTSE100 managed to push up to 1-week highs, before slipping back with AstraZeneca acting as the main drag on the index on disappointment over the results of a new drug/medicine used in the treatment of lung cancer. The outcome of the trial was a positive one, however analysts have suggested a lack of clarity over survival improvement rates is behind today’s share price weakness.

This comes across as a bit of an overreaction given that the data is still being analysed, and its one drug of many, nonetheless today’s weakness is acting as a more than 50 point drag on the index.

On the plus side Shell and BP are in positive territory after Russia and Saudi Arabia announced an extension to existing output cuts on concerns over falling prices. While the move initially helped push oil prices to one-week highs, the gains haven’t lasted very long.

Mining stocks are also seeing some gains on the back of firmer metals prices, after the latest China Caixin manufacturing PMI came in slightly better than expected in June at 50.5.   

US

US markets have got off to a slightly weaker start in a holiday shortened session ahead of tomorrow’s 4^th July holiday.

Tesla shares have moved higher after the latest China sales numbers showed record sales of 466k, during the last quarter, with the full year guidance of 1.8m vehicles looking well within reach. The bigger question however is how much these sales have been achieved because of the recent price cuts, and the possible impact on margins. Volume of sales is welcome but if it comes at the expense of margins today’s rebound could well be short-lived.

Rivian shares have also jumped higher after reporting a similarly strong set of Q2 production numbers, producing 13,992, and saying it was on track to deliver on its 50,000 annual guidance.   

Apple shares are in focus after the company announced it was cutting production of its new augmented reality headset, over what it claims are manufacturing difficulties in China. The company said it was now targeting 400,000 in sales, down from 1m previously. Given the price of over $3,000 a pop the guidance of 1m always seemed a little optimistic so the difficulties being cited couldn’t have been timelier.    

FX

It’s been a subdued session for currency markets with modest gains for the Australian dollar ahead of tomorrow’s interest rate decision from the RBA. Expectations are for the Reserve Bank to keep rates on hold, having hiked rates two meetings in succession, as they weigh up whether to make it 3 in a row. While the consensus appears to be towards holding rates, it wouldn’t be too surprising if the RBA does decide to do another 25bps, pushing the headline rate to 4.35%. The economy has continued to look strong even as headline inflation has started to track lower, and while the Federal Reserve has given the RBA breathing room by pausing in June, the US central bank will probably be hiking in July. That might suggest that the RBA may feel that a hike is the lowest risk option given that core prices are still sticky above 6%.

Firmer gilt yields aren’t doing much to support the pound today, although it has just come off some strong gains in the first half of the year, with traders having to weigh up the prospect of higher rates, against a backdrop of an economy that may struggle to grow at all in the second half of the year.

Commodities

Crude oil prices saw an initial lift on this morning’s report that Russia and Saudi Arabia took the decision to extend their production cuts into August, however the gains have been tempered by concern over slowing demand. While today’s move may well help underpin prices it can’t do much about lacklustre demand, which is the main reason prices have struggled for gains in recent weeks. Today’s weaker than expected US ISM numbers saw prices hit their lows of the day.

Slightly better than expected Chinese PMI numbers have helped give metals prices a lift over the last couple of days, with copper prices enjoying their second day of gains, along with other metals prices.

Gold prices have continued to edge higher after sinking to 3-month lows at the end of last week, however the resilience in yields along with the strength of the US dollar could well help to temper the recent rebound.