Weekly Overview (23 – 27 July 2018): European shares traded high despite geopolitical tension between EU and US

Two business people shaking hands

European shares bravely flew into the Great Trade War hurricane and perplexed analysts by coming out unscathed, trading high in early trading last Thursday.

This sent the pan-European STOXX 600 index up by 0.4%, and Germany’s export-heavy DAX index up by 1%. The positive market shift came after a meeting between U.S. president Donald Trump and European Commission President Jean-Claude Juncker, during which the president lifted his initial decision to impose tariffs on European cars.

Mortgage applications continue to be a problem for the United States as the number of affordable homes dwindle at an alarming rate. Applications were down by 0.2% in volume compared to the previous week, with the total volume being 12.6% less than that for 2017. The average contract interest rate for 30-year fixed-rate mortgages, however, remained unchanged at 4.77%.

US GDP report for the second quarter exceeded expectations of 4% with a performance of 4.1%. This result surpasses the GDP for the previous quarter by two times, a growth fueled by increased consumer spending and a shrinking trade deficit.

Australia’s Consumer Price Index report revealed that inflationary pressures remain weak, once more disappointing analysts. In light of this, it’s unlikely for RBA to hike rates in the foreseeable future. The country’s headline CPI grew by 0.4% in the three months to June, which is 0.1% less than predicted and significantly less than the 2.1% CPI reported for 2017.

Last Thursday, the Governing Council of the ECB announced that they have left the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40%, respectively.  The council expects the rates to remain anchored throughout the summer of 2019, and perhaps even beyond that.

On Wednesday, Facebook shares plummeted by an unprecedented 20% in after-hours trading after announcing lower than expected earnings for the second quarter. Revenue came short at $13.23 billion compared to a forecast of $13.36 billion, while EPS was two cents behind expectations ($1.74). Looking forward, the company warned investors that revenue is likely to be weaker in the second half of the year.

Last week, Ford shares slipped by over 4% in extended hours trading. The car manufacturer failed to meet analysts’ expectations for the second quarter, reporting 27 cents EPS as opposed to Wall Street estimates of 31 cents EPS. The company beat revenue expectations of $35.83 billion by generating $35.91 billion for the period.

For its third quarter, Qualcomm reported better than expected revenue of $5.63 billion compared to a forecast of $5.19 billion. The situation looked even better on the EPS front, where the company reported earnings of $1.01 per share and broke through a consensus of 71 cents.

Mohawk’s shares declined by over 14% in after-hours trading after the flooring giant reported lower than expected EPS of $3.51 for its second quarter against a forecast of $3.90. The revenue of $2.58 billion also slightly disappointed investors, who expected $2.60 billion for the period.

The Greenback performed well, trading at 94.79 (an increase of 0.59%) against a basket of currencies.

The GBP/USD duel ended up in the quote currency’s favour, with GBP broking down below the 100 and 200 hour moving average.

The USD/CAD pair ended 0.20% higher last Friday—the highest level at which the Loonie traded against the USD in a month. Support for the pair sat low at around the 1.3030 level.

The AUD failed to take advantage of USD’s softness on Friday, failing to gain traction on moves above 0.74 U.S. cents. Looking forward, the Australian dollar is expected to trade heavy and to experience difficulties on moves approaching the 0.75 level.

The NASDAQ dropped 1.46% to 7,737.42 after Intel and Twitter shares took a major hit, with share prices declining by 8.5% and by over 20%, respectively. The S&P 500 fell 0.7% to 2,818.82. The Dow Jones Industrial Average declined 76.01 points to close at 25,451.06.

Last Friday, gold traded at 1223.07 (down from 1231.78 for 20 July, Friday), while silver traded at 15.439 (down from 15.475 for 20 July, Friday).

Make sure to visit our detailed trading news report to catch up with all important financial events from last week.