Key events
FTSE 100 hits one-week high, European shares at one-month high
European shares are rising again, with the FTSE 100 index hitting a one-week high, as investors were cheered by a surprise fall in US inflation, boosting bets of an interest rate cut in September.
The FTE 100 climbed 32 points, or 0.4%, to 8,255 this morning. The German Dax rose 0.25%, the French CAC edged nearly 0.2% higher and Italy’s FTSE MiB climbed by 0.5%.
The pan-European Stoxx 600 index rose as much as 0.3% to 521.41, the highest level since mid-June, led by gains in the telecoms sector.
China exports grow at fastest rate in 15 months, boosted by car and chip sales
China’s exports grew at their fastest rate in 15 months in June, boosted by sales of cars, household electronics and semiconductors, while imports unexpectedly declined amid weak domestic demand.
This suggests manufacturers are rushing through orders ahead of tariffs expected from a growing number of trade partners including the EU. There have been calls for further stimulus measures from the government as the $18.6 trillion economy struggles to get back on its fee.
Exports grew by 8.6% year-on-year in June to $307.8bn and over the first half of 2024, China’s exports totalled $1.7tn, up by 3.6% year-on-year.
Auto exports rose by 18.9% in terms of value in the first half, and by 25.3% in volumes, amid lower export prices. Household electronics sales climbed by 14.8% in value terms, but showed even faster volume growth of 24.9%.
Semiconductor exports grew by 21.6% year-on-year in terms of value, and by 9.5% in terms of volume.
Lynn Song, chief economist for Greater China at ING, said:
While the growth level does not appear too high at first glance, this has been stronger than most market participants were expecting at the start of the year…
There still could be some frontloading effect before auto tariffs from the EU and US come into play, but tariffs could lead to a slowdown in auto exports towards the end of the year…
Strong semiconductor export growth shows that China’s self-sufficiency push in tech and its pivot towards hi-tech manufacturing is starting to pay some dividends. China has been a major player in both the export and import of semiconductors as it gears up for the AI race.
Exports to Vietnam, Malaysia and other Asian countries were strong, and to Latin America, especially Brazil.
In contrast, shipments to key developed markets were lacklustre, with exports to the US (1.5%), EU (-2.6%), Japan (-6.3%) and Korea (-3.7%) all a drag on export growth.
On the import side, with sluggish domestic demand there were with sharp declines in soybean (-19.8%), vegetable oil (-34.1%), and grain (-16.4%) imports. The continued drag from the property market pulled down down steel (-7.0%) and timber (-5.1%) imports. As China’s domestic car industry produces more competitive products, its auto imports have also contracted sharply, falling by 13.9%, Song noted.
The net impact of June’s data of higher exports and slower imports translated to a higher trade surplus of $99.1bn. China’s trade surplus in the first half of the year was $434.9bn, up from $400.7bn a year earlier.
Song said:
Heading towards the second half of the year, incoming tariffs and moderating growth in other global economies could start to weigh on export growth, but a supportive base effect will likely keep year-on-year export levels in mid-high single digit growth for most months.
We expect a smaller boost to growth from net exports in the second half of the year, though if imports continue to disappoint this contribution to GDP growth may remain solid in the coming quarters.
Oil prices rise but Brent headed for weekly dip
Oil prices are rising today after signs of easing inflationary pressures in the United States, the world’s biggest oil consumer, although Brent crude, the global benchmark, is on track for a weekly decline.
Brent crude futures rose by 51 cents, or 0.6%, to $85.91 a barrel. US West Texas intermediate crude futures climbed by 59 cents, or 0.7%, to $83.21 a barrel.
Both contracts also gained in the past two days, but Brent is poised for a drop of around 1% this week following four weekly gains.
US crude stocks have declined. The US Energy Information Administration reported on Wednesday that inventories fell by 3.4m barrels to 445.1m barrels last week, which was more than analysts had expected.
Yesterday, a bigger-than-expected drop in US inflation to 3% in June boosted expectations of interest rate cuts, which would help boost fuel consumption.
Yeap Jung Rong, market strategist at IG, told Reuters:
Cooling US inflation numbers may support the case for the Fed to kickstart its policy easing process earlier rather than later, but it also adds to the series of downside surprises in US economic data, which points to a clear weakening of the US economy.
Daniela Sabin Hathorn, senior market analyst at the investment firm Capital.com, said:
The British pound has maintained its bullish bias since the UK election build-up. The fact that the election seemed so easy and straightforward has given investors a vote of confidence in UK assets, especially at a time when there is quite a bit of political instability worldwide. That’s not to say that the new Labour government will not face challenges up ahead, but for now, the political landscape seems a lot calmer than France.
Sterling-dollar has also been taking advantage of a weaker US dollar. The pair has been building the gains day after day.
Introduction: Pound hovers near one-year high; Japan’s SoftBank buys UK chipmaker Graphcore
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound is hovering near a one-year high following yesterday’s stronger-than-expected GDP data, which showed the UK economy returned to growth in May with a 0.4% expansion. At the same time, US inflation came in lower than expected, falling to an annual rate of 3% in June from 3.3% in May, fuelling hopes of a September interest rate cut and driving the dollar lower.
Sterling hit a peak of $1.2947 yesterday, the highest level since late July 2023, and is approaching the $1.30 mark. This morning, it is up by a smidgen to $1.2911.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
In the UK, the pound was already bid yesterday morning after stronger-than-expected growth data helped traders scale back the expectation of an August cut from 70% to a coin toss. Combined with rising hawkish voices at the Bank of England, waning political risks and softening US dollar, we could see cable make an attempt on the $1.30 level. But the fact that the BoE hawks cry louder doesn’t mean that the doves are not around…
Japan’s SoftBank has bought the British artificial intelligence chipmaker Graphcore for an undisclosed sum, ending long-running speculation over the company’s future.
Once touted as a rival to US chipmaker Nvidia, which has seen its own valuation rocket thanks to booming demand for AI computer chips, Graphcore has struggled to secure the investment needed to compete.
Graphcore was valued at $2.77bn at the end of 2020, but the company’s losses widened and it said last October that it needed more cash. It slashed its workforce by a fifth to 494 staff, and shut down operations in Norway, Japan, and South Korea.
The Agenda