Asia markets have seen another decent session with attention on whether we’ll see further progress in US, China trade talks, and this has seen a similarly positive start to today’s session in Europe with the DAX opening at six month highs, while the FTSE100 has lagged behind a little, though it is still trading near the 7,400 level.
Initial indications appear to suggest that progress is being made in the trade talks with the sticking points appearing to be over implementation and enforcement measures. These are said to comprise the final 10% of the deal, and are likely to be the most tricky to navigate, as talks restart in Washington later today.
One of the things that has been noticeable in the past few months has been a divergence between manufacturing and services PMI data, in China, as well as in Europe, and this appears to have continued overnight with a decent uplift in the latest March Caixin services PMI numbers in China which saw a rise to their highest level in over a year to 54.4.
The improvement in the Chinese numbers appears to have been driven by a rise in new export orders, though it also has to be set in the context of a February number which saw a drop to 51.1, which may have been as a result of a slowdown due to Chinese New Year.
The latest Spain and Italy services PMI also appears to have confirmed this divergence with a strong rebound in March to 56.8 and 53.1, respectively. France has continued to struggle and appears to be an outlier with a weak reading of 49.1, while Germany came in at 55.4.
Nonetheless investors have taken this as yet more positive hooks to hang on the decent start we’ve seen so far this month, as we start Q2, led by the Italian FTSEMib which has risen over 20% from its December lows.
Even though the FTSE100 is underperforming its European peers today the best performers are banks and house builders as investors look towards the prospect of a softer Brexit outcome, with Persimmon, RBS and Lloyds all leading the gainers.
In its latest trading update for the current fiscal year UK train and bus company Stagecoach has said that it expects to see an improvement in its full year forecasts which should see full year profits improve. A strong performance in its UK rail division and UK bus operations is expected to help drive this improvement with Virgin Rail expected to see a rise of 6.7% and UK bus a rise of 3.4% in like for like revenue growth. The only drag is in its North America division with the company saying that it expected to complete the sale of this unit by the end of the financial year.
In its full year results the AA reported that total revenue rose to £979m from £960M, however profits before tax declined 60% to £53m, from £141m.
A large part of the decline in profits was down to the investment of £26m in its roadside and insurance division, as well as setting aside another £34m in respect of a pension credit for the prior year.
Membership numbers declined 2% to 3.21m, however the amount of income generated from these subscriptions rose by 3%, helped in some part by improvements to the product mix, like adding complementary home start and car genie free of charge to longer term members.
The insurance business also showed an improvement, with a rise in both new car and home policies.
Superdry shares have fallen further this morning on the news that shareholders decided to narrowly allow the return of cofounder Julian Dunkerton to the board. In a classic case of the law of unintended consequences the vote prompted a mass boardroom exodus, as the CEO and Chairman all stepped down immediately with four other directors saying they would leave on July 1st.
Against such a backdrop it is difficult to be optimistic about the groups prospects until the dust settles, which means it will be incumbent on any new management to steady the shop quickly or risk further share price declines towards the five year lows we saw at the end of 2018 at 354p.
Since January last year the share price has fallen off a cliff from peaks of 2101p, a decline of over 75%, so it is clear that radical surgery is required. The big question is whether Julian Dunkerton is the man to do it.
The pound has seen a decent rebound overnight after Prime Minister Theresa May reached out to Labour leader Jeremy Corbyn to try and find a way to break the impasse around the Brexit negotiations, in defiance of her cabinet and the wider party. Time will tell as to whether her party will hold together in the wake of this shift in policy, with the risk being that it will see Conservative party MPs switch away from supporting her deal. Quite simply she runs the risk of losing more votes from within her own party than gaining from Labour, meaning that the numbers may still not add up when it comes to getting her deal through.
Of course she could be adopting a strategy that forces Labour to come off the fence with its own proposals and potentially widen the splits within its ranks, as well as forcing them to get their hands dirty in any Brexit outcome. A customs union proposal, along with another referendum remains a contentious issue for some Labour MPs.
In any event the clock continues to tick with time running out to push legislation through to either ask for an extension, or pushing some form of deal through. The stakes continue to remain high with any extension likely to have a number of conditions, including participation in the European elections.
US markets look set to continue the positive theme with another strong start ahead of the latest ADP employment report which is expected to show that hiring remained strong in March with another 175k new jobs expected to be added, slightly down from February’s 183k.
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