Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 Index called to open flat at 7748, holding yesterday’s breakout above 7730 to extend the 2-week rising channel towards June 7790 highs. Bulls need a break above 7760; Bears require a breach of 7731 overnight support. Watch levels: Bullish 7760, Bearish 7731

Calls for a flat open come in spite of positive trading on Wall St, where the Tech sector was boosted by strong expectations-beating Q2 results from Apple. Some of the gains initially transferred to Asian exchanges, where much of the Apple supply chain sits, but Asia (sans Japan) slid into the red later in the session as trade war fears escalated.

Mixed tariff messages from the White House, first hinting at potential rapprochement with China, then later President Trump threatening 25% tariffs on $200bn of Chinese imports, added to the negative sentiment. Trade war concerns boosting demand for USD are, however, providing a cushion for the UK Index ’s international contingent.

Oil prices are lower after an unexpectedly large build in API Oil Inventories overnight, while gold extends its downtrend amidst a preference for USD (a safe-haven of its own).

In corporate news this morning, Lloyds Banking Q2 pre-tax profit of £1.52bn beats £1.4bn forecast, NIM +11bp, Cost ratio falls, dividend +7% but PPI jumps to £460m (£90m in Q1) to cover 13K claims per week (up from 11K run rate) until next Aug.

St James’s Place H1 gross fund inflows +15% YoY (Q2 +10%), net fund inflows +21%, op. profit +23%, dividend +20%; 96% fund retention, AUM +6% YTD. Next Q2 Sales slower than flattered Q1, ahead of guidance (summer purchases brought forward), but below consensus; outlook unchanged.

BAE Systems H1 like-for-like revenues -5% YoY, op. profit  -11%, dividend +2%, order book +2.5% to £39.7bn, profits guidance unchanged; some H1 execution issues on US programmes to be covered by higher Electronic Systems earnings.

Smurfit Kappa H1 revenues +5% (+8% underlying), EBITDA +27%, free cash flow +220%, EBITDA margin +300bp, dividend +10%, Expects FY EBITDA materially better than 2017. Rio Tinto underlying profits +16%, dividend +15%, CAPEX +34%, free cash flow -38%, net debt +36%.

Direct Line gross written premiums -5% (own brand +3.3%), operating profit -15.7% (up a touch normalised for weather), combined ratio jumps 4.4pts to 93%, dividend +2.9%, guidance reiterated; CEO to step down next summer after 10 years.

Capita H1 underlying revenue -4% YoY, pre-tax profit -59%, recommends no dividend (H1 2017 was 11.1p), warns on 7-8% lower FY pre-tax profit.

In focus today will be the results of a 2-day Fed’s monetary policy meeting (7pm). No press conference is scheduled (alternate meetings; next in in September) and no change in interest rates forecast. There is a minority view that the Fed could hike from 1.75-2.0% to 2.0-2.25% after that stronger than expected 4.1% Q2 GDP print, to prevent US economy from overheating, although most economists are pencilling in nothing today, but two more hikes later this year.

After all, that GDP figure could always require a downward revision, in which case the Fed wouldn’t want to hike unnecessarily quickly nor have to back-track. Not with it flying the flag and leading the way in terms of post-crisis monetary policy normalisation. Watch the USD and UK Index ’s USD-exposed international cohort for reaction.

In other macroeconomic data, final July European Manufacturing PMIs (8-9am) are expected to confirm rise in France, Germany and the Eurozone, up from June’s 2018 lows. In contrast, UK Manufacturing PMI (9:30am) may give up a little ground in July (hugging 2018 lows), while the US Manufacturing PMI (2:45pm) is expected to confirm only a small change.

After a surprisingly large 5.59m build in API crude oil inventories last night, economists expect DOE EIA Oil Inventories (3:30pm) to post another drawdown, albeit smaller than last week’s. Watch oil markets and Energy equities.

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