Europe overcomes opening weakness

Chris Beauchamp IG

In mid-morning trading, the FTSE 100 is down ten points, but signs of recovery are being seen across equity markets.

- Europe bounces off the lows in early trading
- Overall atmosphere shifting from caution to optimism
- Burberry struggles on tough sales figures

Although off yesterday’s highs, European equities have also moved off their opening lows, as the tentative recovery in risk appetite turns into something more concrete. A 5% pullback in equities tends to happen around three times a year on average – it looks like we have just witnessed our first once for 2019. How much of the drop was due to ‘trade war concerns’ is difficult to assess, and a fresh bout of rhetoric from either side could rapidly put equities on the back foot, but stripping out the noise points to the kind of correction that represents a good buying opportunity for investors. The signs of global weakness are there, as dismal US production figures yesterday are followed up by
slowing growth in another part of Asia, this time Malaysia, and stronger unemployment numbers in Australia, but the shift in tone from central banks continues to reassure nervous investors.

As a company that is painfully exposed to China, Burberry had already suffered heavily, but today’s figures suggest that it is more than its geographical exposure that is causing it problems. The turnaround plan is taking time to develop, and while it does Burberry risks being left behind. Over the past three months the firm has underperformed the FTSE 100, but the YTD return is still healthy – a lessening of trade war tensions and a bigger China stimulus programme (more likely after yesterday’s poor economic data) could be the rescue plan the firm needs.

Ahead of the open, we expect the Dow to start at 25,667, up 19 points on Wednesday’s close.

Author

Chris Beauchamp

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