European stock rally fades as markets remain edgy; UK construction growth accelerates– business live

Over in New York, ride-sharing firm Uber has reported better-than-expected financial results.

Uber has posted earnings per share of 47 cents for the second quarter of this year, beating analyst estimates of 31 cents.

Revenues grew 16% to $10.7bn, ahead of the $10.57bn forecast.

And net income jumped 158%, from $394m to $1.015bn.

Despite concerns about a US recession, Uber executives sound rather upbeat.

Uber’s CEO, Dara Khosrowshahi, says:

“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.

The Uber consumer has never been stronger–more people are using the platform, and more frequently, than ever before–while drivers and couriers earned a new all-time high of $17.9 billion over the quarter.”

Shares in Uber have jumped 6% in pre-market trading.

After a choppy morning, European stock markets are looking becalmed, as investors look to Wall Street for inspiration.

Here’s the state of play, after the initiall recovery from yesterday’s losses fizzled out.

• The UK FTSE 100: up 5 points or 0.06% at 8013 points

• Germany’s DAX: up 6 points or 0.04% at 17,345 points

• France’s CAC: down 19 points or 0.27% at 7,129 points

• Spain’s IBEX: down 41 points or 0.4% at 10,382 points

• Italy’s FTSE MIB: down 30 points or 0.1% at 31,266 points

We’re still expecting Wall Street to open higher; the futures market now has the Dow Jones industrial average up 0.8% or so.

The pound remains at its lowest level in over a month against the US dollar, at $1.2698.

Luke Bartholomew, deputy chief economist at abrdn, says the current market volatility is being driven by three macroeconomic drivers.

First, weak US data reigniting recession fears. Last week’s labour market report was soft across the board, with unemployment now rising in a manner historically consistent with a recession. However, the services ISM rebounded to 51.4 in July from 48.8 previously and the PMI equivalent was even firmer at 55. And the Senior Loan Officers Survey pointed to stabilising credit conditions, although without any loosening from the sizeable tightening over the last few years. More broadly, relatively few economic data are consistent with a recession. Consumer spending and business investment were both solid through Q2, and the Atlanta Fed nowcast is tracking a 2.5% gain in Q3 GDP. Indeed, the NBER recession indictors are signalling few signs of alarm. On balance, then, while we take the deterioration in the US labour market very seriously, we don’t think the economy is in a recession.

The second, and related, driver is the sense that the Fed might be falling behind the curve in responding to weak US data. If the Fed had been meeting this week rather than last, it may well have cut rates. But this does not mean that an unscheduled meeting to announce a rate cut now is likely. In fact, such a move risks heightening volatility by creating a perception of panic. Instead, policymakers will probably try to use verbal interventions to reassure markets. For example, Chicago Fed President Austan Goolsbee was very much looking to calm nerves in comments yesterday, arguing that the employment data was just “one report”, and that the economy does not look to be in recession. We expect similar messages from other Fed speakers in due course. But what is important to stress is that the path to a soft-landing runs through rate cuts. There is a vital distinction between rate cuts that are delivered pre-emptively to stop a slowdown, and reactive rate cuts that come in response to a slowdown. The market needs reassurance the Fed is ready to deliver pre-emptive easing and will not wait until the economy is clearly in recession before cutting.

For now, we continue to forecast a 25bps cut in September, along with a clear path towards further easing this year and next. But another weak labour market report or little let-up in market stress could easily tip the Fed towards delivering a more rapid cutting cycle. We expect the Bank of England and European Central Bank to also extend their rate cutting cycles later this year, although most recent market pricing probably exaggerates the speed and scale of those cuts.

The third driver of volatility is the unwind of the yen carry trade. The Bank of Japan (BoJ) announced more monetary tightening than expected last week, causing a sharp appreciation in the yen. As the yen has been a preferred funding currency for the global carry trade, this appreciation caused a significant positioning unwind, begetting a positive feedback loop of yen appreciation. The BoJ will probably be somewhat chastened by the size of the moves in equity and currency markets. Given that the progress on underlying inflation in Japan is far from complete, it is not obvious that Japan needs a material tightening of financial conditions. So, while the unwind of the carry trade might have further to run, and we expect further tightening from the BoJ, policy rhetoric may now soften and the next hike could be delayed until much later into the year.”:

So much for turnaround Tuesday!

After a positive start, European stock markets have fallen into the red again.

The feeling of optimism following the sharp rally in Tokyo overnight has not lasted for long.

In London, the UK’s FTSE 100 share index is down 35 points, or 0.45%, at 7972 points – so still higher than its low point yesterday.

Germany’s DAX has lost all its earlier gains, now down 0.3%, while France’s CAC has lost another 0.6%.

Reminder, that follows a strong recovery in Asia after Monday’s rout, with Japan’s Nikkei surging around 10% – its biggest one-day jump since the financial crisis of 2008.

In less encouraging news, eurozone retail sales have fallen again.

Reail sales in the euro area dropped by 0.3% in June, new data shows, missing forecasts for a 0.2% rise.

Analysts at ING say this is “more sluggish news about the eurozone economy” as consumers postponed the retail recovery again.

Newsflash: growth accelerated in the UK construction sector last month, at the fastest pace in 26 months.

Building firms reported “much faster increases” in both activity and new orders in July, according to the latest poll of purchasing managers by S&P Global.

Thsi lifted the Construction Purchasing Managers’ Index up to 55.3 in July from 52.2 in June, showing faster growth (50 points = stagnation).

That’s the fastest rate of expansion since May 2022.

S&P Global reports that all three categories of construction grew last month – civil engineering expanded fastest, followed by commercial work and then housebuilding.

A pick-up in housebuilding should be welcome news for the new government, as it aims to build 1.5m new homes this parliament.

Andrew Harker, economics director at S&P Global Market Intelligence, says:

“The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.

The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”