Europe stutters as fresh warnings arrive

In mid-morning trading the FTSE 100 is 40 points lower, while European markets also fall thanks to a warning from Volvo and worries about US earnings season.

- Atmosphere turns sour for equities after Netflix earnings
- UK consumers keep spending, boosting retail sales data
- Netflix’s miss may provide an opportunity

The selling on Wall Street has continued in Europe this morning, as the Netflix miss generates an understandable amount of caution among investors. Combined with the CSX warning yesterday afternoon, the news has been enough to sour earnings season thus far, with markets already looking vulnerable to a pullback regardless of whether trade wars return to the agenda or not. Volvo’s warning this morning about the impact of trade wars will also do little for sentiment, boosting the chances of another ‘summer swoon’ for equities. There was some good news for sterling, however, as retail sales rose while Michel Barnier’s comments on the Irish border were taken as an indication that the EU’s position may be open to some movement. It hardly needs saying, but a strong labour market and rising wages would normally be very good news for the UK economy, were it not for the presence of the Brexit ghost at the table. Everything else has to be viewed in the light of this, leaving UK assets in the doghouse for the time being.

Netflix’s disappointing Q2 should not obscure the fact that the firm continues to post impressive growth rates and healthy profits. Usually, performance is weighted towards the second half of the year for both metrics, and a quick glance at the stock’s seasonality over the past fifteen years points to a rally into Q2 earnings followed by a swift drop that provides yet another buying opportunity.

Ahead of the open, we expect the Dow to start at 27,153, 66 points down on Wednesday’s close.