Market movers: FTSE 100 outperforms amid mixed European session

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

EUROPEAN MARKETS

It is a mixed picture for European equities with FTSE 100 outperforming, inching closer to resistance at 7,300. Eurozone flash PMI figures for July are trickling out with Germany and France’s manufacturing readings slipping below the 50 boom-bust line while its services readings also declined.

UK GfK CONSUMER CONFIDENCE  

UK GfK consumer confidence remained at a record 48-year low, hitting -41 in July, slightly beating expectations for -42. However there was a slight improvement in the personal financial situation score from -28 to -26.

The doom and gloom among consumers continues as spiralling food and fuel prices along with rising interest rates weigh on sentiment. The pick-up in the personal financial situation score reflects the ousting of Boris Johnson with some optimism towards a new leadership in government. However outlook towards the general economic situation worsened as fears of a recession, rising inflation and tightening monetary policy resulted in a decline in morale.

UK RETAIL SALES

UK retail sales fell for the second month in a row, down by 0.1% in June but ahead of expectations for a drop of 0.3% with clothing sales down by 4.7% and fuel off by 4.3%. Overall retail sales volumes are 2.2% above their pre-pandemic levels but are down year-on-year. The proportion of online retail sales fell to 25.3% as the downtrend continues from the peak in February 2021.

The challenging macroeconomic backdrop is weighing on consumer spending, laid bare by another decline in retail spending. Sky-high petrol and diesel prices have dampened demand for fuel, while households are cutting back on discretionary spending as the cost-of-living crisis bites. However, the Queen’s Jubilee celebrations helped to stem an even steeper decline in retail spending with food sales enjoying a boost in June. The pandemic expedited a massive shift towards online shopping. However, this trend is slowly reversing to some extent as consumers enjoy being able to visit brick and mortar stores once again.

SNAP

Shares in Snap (NYSE:SNAP) plunged by more than 25% after-hours last night despite its global daily active users hitting 347 million, ahead of expectations. The social media giant reported a miss in the second quarter on the top and bottom lines and announced plans to slow its rate of hiring and operating expense growth. Snap refused to provide guidance for the third quarter because it said ‘visibility remains incredibly challenging.’

It has been a very tough year for Snap on the back of the overall shift away from technology stocks amid rising interest rates and a challenging macroeconomic backdrop, stiff competition from TikTok and the fickle nature of social media users, and Apple’s 2021 iOS update which are all weighing on its business. Snap is following in the footsteps of other companies in the sector such as Apple (NASDAQ:AAPL), Meta (NASDAQ:META) and Tesla (NASDAQ:TSLA) by slowing hiring and spending to prepare for a potential recession.

As a stay-at-home stock, Snap enjoyed a meteoric rise of almost 1000% from March 2020 until the peak of $83.34 in September last year. However post-pandemic, with investors shunning the tech sector, the stock has given back most of those gains with Snap heading back down towards key support at $10 a share.

JAPAN INFLATION RATE

Japan’s core CPI rose by 2.2% in June, ahead of the central bank’s 2% target for a third consecutive month driven by high global raw material prices. Stripping out food and energy, consumer prices rose by 1% year-on-year. Inflation is still sharply below the price increases seen elsewhere such as the US and the UK. Plus Japan is less concerned by rising price levels than other countries, given its long-standing battle with deflation. Nonetheless inflation in Japan is still likely to weigh on its overall economy with low-income households struggling with the cost-of-living as food and fuel prices continue to rise. And inflation looks set to rise further with The Bank of Japan this week raising its forecast for price levels from 1.9% to 2.3% for the fiscal year ending in March 2023.