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Yahoo
2 days ago
- Business
- Yahoo
Dollar steady before US inflation report, US-China tariff deadline
By Samuel Indyk and Gregor Stuart Hunter LONDON (Reuters) -The U.S. dollar was consolidating on Monday before Tuesday's deadline for Washington and Beijing to strike a tariff deal and a key U.S. inflation report that could help determine whether the Federal Reserve lowers borrowing costs next month. The dollar index was up less than 0.1% to 98.30 after last week's 0.4% fall. Against the yen, the U.S. currency traded at 147.87, up 0.1%. Japanese markets were closed on Monday for the Mountain Day holiday. The euro was down less than 0.1% at $1.1636, while sterling was down 0.2% at $1.3435. The dollar softened last week as investors adjusted their expectations for interest rate cuts from the Fed after soft data on U.S. jobs and manufacturing. Fed officials have sounded increasingly uneasy about the labour market, signalling their openness to a rate cut as soon as September. Cooling inflation could cement bets for a cut next month, but if signs emerge that U.S. President Donald Trump's tariffs are fuelling price rises, that might keep the Fed on hold for now. "It's important to note ahead of tomorrow's data that the bar for a hawkish surprise is higher," said Francesco Pesole, FX strategist at ING. Pesole added that a 0.3% monthly rise in core CPI would give the Fed room to lower interest rates, given the deterioration in the labour market. Economists polled by Reuters expect core CPI to have risen 0.3% in July, pushing the annual rate higher to 3%. Money market traders are pricing in around a 90% chance of a rate cut next month, while 58 basis points of easing are priced in by year-end, implying two quarter-point cuts and around a one-in-three chance of a third. Personnel moves at the Fed have also weighed on the dollar recently. Trump is preparing to install rate-setters that support his dovish views on monetary policy, including a new chair for when Jerome Powell's term ends in May. Trade talks were also in focus as Trump's August 12 deadline for a deal between the U.S. and China neared, particularly on chip policy. "The market has fully priced in the idea that we're going to get an extension," said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, adding that another 90-day truce was most likely. With the U.S. and China seeking to close a deal averting triple-digit goods tariffs, a U.S. official told Reuters that chip makers Nvidia and AMD had agreed to allocate 15% of China sales revenues to the U.S. government, aiming to secure export licences for semiconductors. "I don't know if that's going to be a good thing or a bad thing, but if it puts closure on the matter, it's not a bad outcome," Weston said. "If this is Trump saying 15% and we'll call it a day, that may not be too bad." The offshore yuan fluctuated between gains and losses, trading at 7.1913 to the dollar, after weekend data showed China's producer prices fell more than expected in July, while consumer prices were unchanged. The Australian dollar fetched $0.6514, trading down 0.2% ahead of a rate decision on Tuesday, in which it is widely expected that the Reserve Bank of Australia will cut rates by 25 bps to 3.60%, after second-quarter inflation came in weaker than expected and the jobless rate hit a 3-1/2-year high. Cryptocurrencies jumped, with bitcoin rising as high as $122,308, not far from its July 14 record of $123,153.22, after Trump's executive order on Thursday freed up cryptocurrency holdings in U.S. retirement accounts. Ether rose as high as $4,346.01, its highest since December 2021. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
Europe Q2 earnings: Strong euro, tariff worries weigh but banks shine
By Samuel Indyk and Danilo Masoni LONDON/MILAN (Reuters) -European companies are proving they can just about endure U.S. import tariffs, eking out earnings growth for a fifth straight quarter, but at a slower pace than in the United States. According to LSEG I/B/E/S, second-quarter earnings are expected to have increased 3.1% from the same period a year ago. Just over half of the companies to have reported have exceeded analyst estimates, broadly in line with a typical quarter. Earnings from financials (up 11.4%) and healthcare (up 15.4%) are among the strongest growth rates but while the former is loved by investors, the latter is currently out of favour. Here are five lessons from Q2 earnings: EARNINGS SLUGGISH, OUTLOOK POSITIVE European companies remain optimistic even though their Q2 earnings growth is substantially weaker than the big tech-powered 12% expected in the United States. "Roughly 30% of companies have increased their guidance and very few companies downgraded guidance, which is surprisingly positive," Maximilian Uleer, Deutsche Bank's head of European equity and cross asset strategy research, said. "We think this guidance observation is pretty important and the theme will continue as companies have better visibility on the downside risk," Uleer added, citing the recent trade deal between the U.S. and European Union. EURO PAIN Currency strategists bet that the dollar would strengthen, particularly against the euro, when the higher U.S. import tariffs kicked in. But the single currency has risen over 12% against the greenback this year and Europe's export-heavy companies have felt the pain. "Larger companies are typically more globally diversified, they generate more revenues from outside of Europe and obviously with the euro strength, that's been a relative headwind for earnings for them," said Rory Dowie, portfolio manager at Marlborough. Barclays and Citi estimate that, typically, a 10% appreciation in the euro results in around a 2% earnings headwind, with Citi pointing to sectors like materials and energy as the most sensitive to FX moves. Yet a broad spectrum of companies have flagged currency headwinds, including Allianz, Bayer, Continental, Ferrari, TotalEnergies and Puma, according to analysis of transcripts. UNSTOPPABLE BANKS? All seven lenders in the STOXX 50 blue-chip index beat expectations, and two improved their guidance. The sector index surged to its highest since 2008, as investors bet on the industry's resilience. Financials delivered the biggest positive second-quarter earnings surprise among European sectors, coming in 12% above analyst forecasts, more than twice the 5.5% rate for the broader STOXX 600, according to LSEG I/B/E/S data. "In Europe, banks have been the main driver of this season, whereas in other areas like autos and discretionary goods we're seeing sharp downward revisions," said Alberto Tocchio, Head of Global Equity and Thematics at Kairos Partners. Still, after a 37% rally this year and the best three-year run since the euro's launch in 1999, some caution is creeping in. BofA has advised long-term investors to hedge exposure, warning that banks could be vulnerable if the economy slows. HEALTHCARE ON WATCH The European healthcare sector has posted Q2 earnings growth of 15%, second only to the technology sector, but investors are keeping their powder dry given U.S. President Donald Trump has mooted a 250% levy on pharmaceutical imports. "We are very cautious on the sector despite the earnings growth," said Deutsche Bank's Uleer. "If we have certainty at some point, it's one where I could think of doing a double upgrade from underweight to overweight." CONSUMER PAIN Investors are turning away from consumer stocks as weak results and cautious outlooks highlight the sector's vulnerability to tariffs and shifting spending habits. Companies from luxury to staples are struggling to balance cost pressure with fragile demand, especially in the U.S. - forcing tough decisions on pricing and strategy. "Anyone exposed to consumption, especially services, is really being hit," said Arun Sai, senior multi-asset strategist at Pictet, noting that the market has underappreciated how much the U.S. has already slowed. According to LSEG I/B/E/S data, earnings from consumer cyclicals such as carmakers and luxury have come in 8% below expectations, while the rate for consumer non-cyclicals such as food companies is 2%, less than half the broader market. Adidas shares fell 18% over six days after it warned it may have to hike U.S. prices, while brewer AB InBev fell 11% as weak Brazil and China demand hit volumes. In the luxury sector, Ferrari slumped 12% in its biggest drop ever after saying it would cut U.S. prices, while Hermes shares dropped 12% over three days.
Yahoo
04-08-2025
- Business
- Yahoo
Sterling advances against dollar, euro ahead of BoE policy announcement
By Samuel Indyk LONDON (Reuters) -The British pound climbed against the dollar on Monday, adding to gains from Friday as the U.S. currency dropped following a weak U.S. jobs report, with the focus on the Bank of England's impending policy announcement later this week. The pound was last at $1.3306 against the dollar, up 0.2% after a 0.6% gain on Friday. But the currency slid 3.8% last month, its biggest monthly drop since September 2022, on concerns over Britain's fiscal position and softening economic data. "Narratives are often hard to shake and the mood music around GBP has been glum for some time," said Kamal Sharma, senior FX strategist at Bank of America. The pound was last up 0.3% at 87 pence per euro. It fell to 87.69 pence last week, its weakest against the single currency since May 2023. Sharma believes the pound will strengthen into year-end against the euro as he expects euro area data to soften, prompting more rate cuts from the European Central Bank. Danske Bank FX strategist Mohamad Al-Saraf held a more bearish view on the pound, expecting the currency to fall to 89 pence per euro in 12 months. "We think the British economy has shown more pronounced signs of weakness, particularly the labour market," Al-Saraf said. "The relative growth outlook between the UK and the euro area are becoming pound negative." Attention was turning to the BoE policy announcement on Thursday, with markets pricing in around a 90% chance of a quarter-point rate cut. Traders are pricing in 50 basis points of easing by year-end. With a rate cut almost fully priced, focus for currency traders will be on the outlook for interest rates and whether the central bank could slow the pace at which it shrinks its holdings of government bonds, known as quantitative tightening. "There could be a positive surprise for sterling were the BoE to announce that a lower pace of quantitative tightening ... was accompanied by fewer sales of longer-dated Gilts," said ING head of research Chris Turner.
Yahoo
25-07-2025
- Business
- Yahoo
Analysis-Investors bet on Europe's smaller companies to dodge tariff fallout, strong euro
By Samuel Indyk LONDON (Reuters) -Europe's smaller companies are emerging as a popular vehicle for investors to help insulate portfolios against both tariffs and a stronger euro, as cheaper credit and the prospect of more government spending bolster confidence in the economic outlook. The domestic-leaning bias of smaller companies makes them less vulnerable to levies on cross-border goods and they are also less exposed to currency swings when the euro strengthens, making euro-zone exports more expensive abroad. The STOXX Europe small- and mid-cap indexes have risen 9% and 11% this year, respectively, beating the STOXX Europe large-cap index, which has risen just 7%. U.S. President Donald Trump has bagged a handful of trade agreements with global partners since unveiling sweeping global levies in April, the most significant of which was a deal with Japan this week. But there is still no deal with the European Union and an August 1 deadline is just days away. Speculation swirled on Wednesday of a 15% rate for the EU, but was quickly dismissed by the White House. "One of the benefits of small-caps is that they are a bit more insulated from a geographical standpoint," said Ingmar Schaefer, a portfolio manager at Van Lanschot Kempen. "Whatever happens with U.S. tariffs, a local company will not be impacted by as much as a global player in the same field." An analysis by Goldman Sachs found that companies in the STOXX large-cap index generate about 35% of their revenue in Europe, compared to 60% of revenue generated by companies in the small- and mid-cap indexes. That has helped to offset a stronger currency. The euro has risen over 12% in 2025 to around $1.17, defying predictions prior to the April 2 "Liberation Day" tariff announcements that it could even reach parity with the dollar. But that was upended by investors turning their back on U.S. assets. Some analysts now expect the euro to hit $1.20, a possible headwind for larger companies due to greater international exposure, but a relative tailwind for smaller companies. "The way people have played Europe in the past is to be apologists for Europe, targeting businesses that have high revenue exposure to the U.S. or the Asian consumer through the luxury sector," said Harry Eastwood, investment director at Artemis Investment Management. "Liberation Day slightly disrupted the global order of trade and small- and mid-caps have become much more interesting, purely from the fact that they're somewhat insulated from that," Eastwood said, adding that his fund was at the upper limit of its small- and mid-caps weighting. DISCOUNT SHRINKS Historically, smaller companies have tended to trade at a premium to large ones, as they generally exhibit higher growth rates. But the situation reversed in 2023 and 2024, as inflation in Europe soared and the European Central Bank raised borrowing costs, leading smaller companies to now trade at a discount to bigger ones. Small-caps traded at a record discount of 11% to larger companies in March this year but that has since shrunk. The STOXX Europe small-cap index currently trades at 13.4 times forward earnings, below the large-cap index's 14.3 times, a discount of 6.5%. "We've been in a situation where most investors have had less confidence in the earnings of small companies compared to large companies which is why they traded at a discount," said David Walton, fund manager at Marlborough. "But in the last month, we've seen a slight increase in confidence in the earnings outlook for small companies which is supporting the rally." European small- and mid-sized companies have registered net inflows for the last 10 weeks straight, the longest such stretch since 2021, according to Lipper fund flows data. Germany, the euro area's biggest economy, has unveiled a massive spending push, while the ECB has begun to lower interest rates. Both could spur the euro zone economy, giving it a much-needed boost after years of subdued growth. Germany's SDAX small-cap index, has jumped almost 20% since the federal election in February, while the blue-chip DAX has risen 8.4% in the same period. The ECB paused its rate-cutting cycle this week, but the deposit rate is 200 basis points lower than it was in the middle of last year. "When we look at the next 12 months we think there can definitely be a re-rating of small caps vis-à-vis large caps," said Van Lanschot Kempen's Schaefer. Sign in to access your portfolio
Yahoo
29-05-2025
- Business
- Yahoo
Trump tariff push given new twist by court setback
By Samuel Indyk and Sarah Marsh (Reuters) -A U.S. trade court ruling that blocked most of President Donald Trump's tariffs and found he had overstepped his authority triggered some relief on financial markets on Thursday, while adding to the uncertainties weighing on the global economy. Among the United States' big trading partners, in the throes of negotiation with the Trump administration, Germany said it could not comment, as did the European Commission. "We ask for your understanding that we cannot comment on the legal proceedings in the U.S., as they are still ongoing," a spokesperson for Germany's economy ministry said. "We continue to hope that a mutually beneficial solution can be reached in the negotiations between the EU Commission and the U.S. government." Winners on financial markets included chip makers, banks, luxury stocks and auto industry, all hit hard by tariff-led disruptions. The U.S. dollar rallied 0.2% against the yen and 0.3% against the Swiss franc as currencies and assets that have benefited from the tariff-induced market turmoil fell. [MKTS/GLOB] Wall Street stock index futures rose by more than 1.5%. The trade court ruling on Wednesday dealt a blow to Trump's central policy of using tariffs to wring concessions from trading partners. His administration immediately said it will appeal and analysts said investors will remain cautious as the White House explores its legal avenues. If the court ruling holds, the president could deploy other trade laws to impose sector-specific levies as well as across-the-board and country-specific tariffs. Following a market revolt after his major tariff announcement on April 2, Trump paused most import duties for 90 days and said he would hammer out bilateral deals with trade partners. But apart from a pact with Britain this month, agreements remain elusive and the court's stay on the tariffs may dissuade countries like Japan from rushing into deals, analysts said. Another pause in Trump's stop-start trade policy could be helpful to opponents of his tariffs and to traders who relish volatility. "Assuming that an appeal does not succeed in the next few days, the main win is time to prepare, and also a cap on the breadth of tariffs – which can't exceed 15% for the time being," George Lagarias, chief economist at Forvis Mazars international advisers, said. TURMOIL Trump's trade war has shaken makers of everything from luxury handbags and sneakers to household appliances and cars as the price of raw materials has risen, supply chains have been disrupted and company strategies redrafted. Drinks company Diageo, automakers General Motors and Ford are among those who have abandoned forecasts for the year ahead. Non-U.S. companies including Honda, Campari and pharmaceutical companies Roche and Novartis have said they are considering moving operations or expanding their U.S. presence to mitigate the impact of tariffs. As markets assessed the latest twist in the trade upheaval, European export-sensitive sectors, such as autos and luxury stocks, were among leading gainers on Thursday. The pan-continental STOXX 600 was up 0.4%, while France's CAC 40, which has a heavy weighting of luxury and bank stocks, rose 0.8%. Overall sentiment was also lifted by strong results late on Wednesday from AI bellwether Nvidia. Spot gold declined for a fourth straight day, while U.S. Treasury yields rose. Bond yields move inversely with prices. But the gains in shares may be short-lived, analysts said, with those who relish risk making the most of them. "I think we are in a period of higher volatility - we will get some more spikes on the way, I think. But volatility is the friend of the active investors," Kevin Barker, global head of active equities, UBS Asset Management, told a media briefing.
