Another catastrophe was averted, and transatlantic trade war was saved last night as Juncker and Trump reached a deal. Traders celebrated this news on Wall Street and pushed the stocks higher. The same momentum is filtering into the European futures today however there is also a strong influence of disappointing earnings result which is impacting the overall indices.
Traders do have every right to celebrate Juncker and Trump meeting because the tensions were high before the meeting as it was pretty much clear that we are heading towards a real trade war. But thanks to common sense which prevailed last night, and it eased tensions stoked by threats coming from both side.
Under the agreement, both sides would hold off on other tariffs as the negotiation process continues. The joint statemen by leaders did look like a fairy tale, both sides agreed to work towards zero tariffs. For Trump it does not matter what the final deal would like, but for now, it is enough for him to show the world that he delivered on his promise and he brought the Europeans to a point where he thinks that things are fair.
In short and simple words, the EU does not want to be part of any resistance and Donald Trump has another victory to talk about.
The most popular stock among hedge funds got slammed last night and entered in to a bear market territory. Yes, we are talking about Facebook facing growth challenges. The stock wiped out nearly $130 billion in market cap and it has erased all of its gain for the current year. Even during the conference, Mark Zuckerberg failed to rescue the stock as the element which haunted traders is that Facebook isn’t confident about the growth rate. The forecast for Q3 and Q4 wasn’t charming at all and the stock collapsed.
The other main reason for disappointment for Facebook investors was in the massive increase in the operating cost due to rise in the headcount. Smart money failed to factor in the impact of Facebook’s scandals on user agreement which resulted in higher headcounts. The increase in cost effected the operating margin. The operating profit declined to 44% from its previous reading of 47% one year ago. The net effect comes to free cash flow which plummeted.
Back in the Eurozone, currency traders are focused on the ECB press conference and all eyes would be Draghi once again. It is all about the risk assessment today and how the president of the European Central bank read the current situation given the trade war (which is diffused). You can see that the economic growth muscles for the eurozone are looking fatigue and a lot of this has to do with the matters which are just beyond the ECB control- the trade war and tariffs. Both; trade war and high tariff impose a serious threat and the ECB is mind of this fact. Economic data published on Tuesday confirmed that the business activity is being impact due to the protectionism policies. The purchasing manager’s index for services dropped unexpectedly this week. The ECB has said that it would end the QE this year and would not touch the interest rate for another year and we do not think there will be any new buzz word when it comes to this particular statement.
The ECB needs to extremely vigilant about its monetary policy because it is winding down its QE when protectionism is at its peak and growth isn’t flexing its muscles. Draghi would have to strike a balance tone today, he cannot be overly dovish just like recent meeting back in June.
