It is a double whammy for the eurozone, Italy has slipped into recession and there is increased chatter of a Deutsche Bank and Commerzbank merger. 

Europe

The third-largest economy in the eurozone has experienced two consecutive quarters of negative growth, and that has spooked investors, and it could weigh on the entire currency bloc. The FTSE 100 is showing gains thanks to the performance of mining and energy stocks. 

Deutsche Bank and Commerzbank have fallen sharply today after it was reported there might be a merger of the two struggling banks. It is believed the German government would back the move in the hope it would renew confidence in Deutsche Bank. Tie-ups should only take place when it is mutually beneficially, it shouldn’t be pursued to keep the short-sellers at bay. 

Renishaw announced its first-half figures, and revenue ticked up by 6.1%, while pre-tax profit dropped by nearly 7%. Distribution and administration costs rose and that hit earnings. The interim-dividend was left unchanged at 14p. The UK and Ireland division saw a 20% rise in revenue in the six month period, but that might be because clients were stocking up on products ahead of Brexit. The company is expanding its operation in Gloucestershire, and it is also expanding its business in Dublin as a way Brexit-proofing the business. The stock has been broadly moving higher since October, and if the bullish move continues it might target the 4,800p region.

Diageo shares are higher today after the drinks company posted solid figures, and announced an increase to the share buyback scheme. Revenue for the first-half increased by 5.8%, while operating profit rose by 11%. The group confirmed the share buyback scheme has been boosted by £660 million. The interim dividend was raised by 5% too, and the impressive returns to shareholders has sent a positive signal to investors. The group saw revenue growth of 20% in Greater China, as sales of Johnnie Walker blue proved popular in the Far East. The share price hit a record high today, and if the upward move continues it might target the 3,000p region.

Royal Dutch Shell rallied after the energy firm revealed robust figures. Fourth-quarter profit jumped by 47% to $5.69 billion, which topped the forecast of $5.39 billion. The annual current cost of supplies earnings jumped by 36% to $21.4 billion – a four year high. The group launched the next round of its share buyback scheme, and this tranche will be $2.5 billion. On an annual basis, the integrated gas and the upstream businesses saw sizeable improvements in incomes.  It is impressive the company can produce such levels of profitability given the volatility in the underlying oil market. 

Unilever shares are in the red after the company confirmed that fourth-quarter underlying sales grew by 2.9%, while dealers were expecting 3.5%. The softer finish to the year led to annual sales growth of 2.9% - its lowest rate since 2014. On the bright side, operating margin edged up to 18.4% from 17.5% from a year earlier. The company is still aiming to target 20% operating margin by 2020, but given the consumer environment, and the group’s exposure to emerging markets, it might be difficult to achieve.

US

The US indices are mixed after last night’s rally. Yesterday, the US central bank stated they would be ‘patient’ when it comes to hiking interest rates, and that triggered a spree of buying. Today, the dust has settled and now traders are pondering their next move.

Facebook shares soared after the social media giant posted impressive numbers after the closing bell last night. Fourth-quarter EPS jumped 65% to $2.38, comfortably topping the $2.18 estimate. Revenue for the period was $16.9 billion, and the consensus estimate was $16.4 billion. The firm’s image took a knock when the Cambridge Analytica scandal broke, but it didn’t stop it from producing record earnings in the fourth-quarter.  

Microsoft revealed second-quarter revenue of $32.47 billion, but the consensus estimate was $32.51 billion. EPS came in at $1.10, which was narrowly ahead of the $1.09 estimate.  The tech giant confirmed that Azure – the firms cloud computing division, achieved zero growth compared with the previous quarter. The stock is lower on the day. 

Initial jobless claims jumped to 253,000, from last week’s revised figure of 200,000. Keep in mind, yesterday’s ADP report was 213,000. Traders will be keeping an eye on tomorrow’s non-farm payrolls report.

FX

EUR/USD hasn’t moved much despite Italy being in recession. The currency markets have experienced low volatility today in the wake of the sell-off in the US dollar last night due to the Fed’s update. It is odd that the euro is largely unchanged versus the greenback given the Italian situation.

GBP/USD has also seen little movement today, but that is partially due to a lack of important economic updates from the UK. According to Nationwide, average UK house prices grew by only 0.1% on an annual basis – the softest reading in nearly six years.  

Commodities

Gold reached yet another eight month higher after the neutral update from the Fed yesterday. The US central bank have given an indication they won’t be hiking interest rates in the medium-term and that has lifted the gold market.

Oil prices are a little firmer today as dealers are worried about future supply, given the US imposed sanctions on Venezuela. The disappointing manufacturing PMI figures from China overnight had little impact of the energy market. 

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