Monday, 1st August: A prominent policymaker from the Fed, William Dudley, has encouraged caution on a rate hike in the US after stating negative shocks were more likely than positive ones. Citing the Brexit and strong dollar, the warning also followed subdued Q2 growth reading from the US on Friday. This partly contributed to a broadly speaking positive session across Asia on Monday morning. The Hang Seng closed 1.36% higher and the Nikkei 225 closed 0.4% higher. Investors chose to offset disappointing Chinese data with bets on the Fed, as August data releases began with poor factory activity; PMI unexpectedly dropped in July, after flooding coupled with softer demand to hurt business. The official PMI slipped to 49.9 in July from 50.0 in June, prompting fears for slowing economic growth in the coming months unless the Government steps in with a large spending spree.
Sticking with China, the latest deal from the Red Dragon was a merger agreement between Uber’s Chinese business with rival Didi Chuxing. Uber China has struggled to make an impression since its launch in 2014, failing to make a profit since and failing to make an impression on rival Didi which estimates its market share at nearly 90%, making 14 million journeys a day. The £35bn deal will give Uber China a 20% stake in the company as oppose to the £1bn it was losing per year trying to compete head to head. The deal is certainly better than some of the football deals coming out of the area too, but that’s another story.
The UK also released manufacturing data today, unsurprisingly the data was disappointing as it encompassed the first full month of data since the Brexit vote. Activity slowed to the slowest pace in 3 years for the month of July, the Markit/CIPS manufacturing PMI retreating to 48.2 from June’s 52.4. This will no doubt increase the likelihood of a rate cut from the BoE this week, with analysts expecting rates to be pulled back to a record low of 0.25%. Following the news the FTSE 100 retreated back to flat territory after making a positive early start to the week off the back of a decent Asian session and rise in the price of oil and ended the day 0.45% as oil fell further after the US session kicked off the week poorly following a slowdown in manufacturing in line with the many other PMIs released today.
On the day British banks were amongst those who struggled after a report released on Friday night detailing the health of 51 lenders across Europe highlighted RBS and Barclays as some of the worst performing. Despite the fact both banks are probably in a better position that they once were their position at the foot of the table at a time where uncertainty isn’t in short supply has rightly warned investors to some extent. At the close RBS closed 1.74% with Barclays 2.04% down.