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Italy-EU tensions rise, ADP jobs report shakes confidence

Italy-EU tensions rise, ADP jobs report shakes confidence

After a bullish start to the day, most European indices are now in the red as the optimism has faded.


Traders in Europe were spoked by the dreadful ADP employment report in the US, and worries that Italy and the EU are about to be a loggerheads again has weighed on sentiment. Equity markets are still up on the week, and this move might prove to be a breather as the macroeconomic and political picture is better now than it was at the end of last week.

The EU stated that disciplinary action is required against Italy in relation to the debt. The European Commission will start proceedings against the administration in Rome for its ‘excessive deficit’. The Italian government are keen to run a deficit in order to try and encourage economic growth. Italy’s joint deputy prime minister, Matteo Salvini claims the EU will respect the growth focused policies, but it seems the two are on a collision course, and the FTSEMIB is lower today.

Non-Standard Finance (NSF) dropped its hostile bid for Provident Financial, and Provident shares’ have soared. Provident Financial has been struggling for nearly two years, and a series of profit warnings have hit the stock hard. NSF approached the troubled lender in February, and Provident shareholders were resistant to the bid as they felt it was an opportunistic move. Last night, it was announced it will no longer peruse the bid as there was push back from Provident Financial shareholders.

Workspace continues to perform well considering it is in the real estate business. The office space it rents out is in high demand as rent per square foot increased by 3.8%. Not only are rents going up, so are the properties value, as net asset value ticked up by 4.7%. Trading profit rose by 16%. Real Estate Investment Trusts (REITs) that largely invest in shopping centres and retail parks are suffering compared to Workspace, as e-commerce has dented the traditional retailers. Well-located office space is in much more demand that retail sites, and the flexible contracts offered by Workspace is proving popular too.

Biffa posted a 0.9% rise in annual revenue and underlying pre-tax profit rose by 7%. The group is investing in recycling and energy from waste assets, and that has the potential to be a big industry in the future given the global drive to introduce eco-friendly policies. Biffa is improving its services as client churn has dropped. The group expanded through acquisitions and organic methods too. 


Equity markets are higher as the feel good factor from yesterday is still doing the rounds, but the optimism might wane a little. The ADP employment report showed that a pitiful 27,000 jobs were added in May, which was well below the 180,000 forecast. The April report was revised lower to 271,000 from 275,000. The tepid report comes at a time when there are fears the US economy is cooling and there has been increased chatter about an interest rate cut towards the back end of the year. Today’s ADP announcement has sharpened traders’ minds about the non-farm payrolls report on Friday. It wasn’t all bad news, as the ISM non-manufacturing reading was 56.9, which topped the 55.5 forecast.  

GameStop shares have slumped after the company posted broadly disappointing first-quarter figures. Revenue for the period dropped by 13.3% to $1.55 billion, which undershot the $1.64 billion forecast. In an effort to conserve cash, the firm stopped its quarterly dividend with immediate effect, and that was a major blow to investor confidence. The group previously cautioned that sales would fall by between by 5% and 10%, and todays update undermined investor confidence even further.    

Salesforce.com shares are a little higher this afternoon on the back of last night’s solid first-quarter update. The group has made further inroads into the lucrative cloud computing market as cloud revenue increased by 11.1%. Group revenue jumped by 24% to $3.74 billion, and that was marginally above the forecast of $3.69 billion. EPS came in at 93 cents, which smashed the 61 cent consensus estimate. When the company announced its fourth-quarter results, it lowered its forecast, and that is why they we easily beaten.


EUR/USD was aided by the dip in the US dollar, and the largely positive service PMI reports from the eurozone helped too. The Spanish, Italian and German services data all exceeded forecasts, while the French narrowly undershot the consensus expectation. Eurozone retail sales decline by 0.4%, meeting economists’ predictions, but traders were more interested in dollar story.

GBP/USD has also been given boost by the drop in the greenback. The UK services PMI reading was 51, and that was an improvement on April’s 50.4. The services sector is by far the biggest component in the British economy, so the update bodes well for the pound.  


Gold has rallied on the back of the softer US dollar, and the metal isn’t too far from the February’s highs. The speculation the Federal Reserve will cut rates has weighed on the greenback, and it has made the metal relatively cheap. If gold breaks above the $1,346 area, it might pave the way for $1,366 to be tested.

Oil slumped after the Energy Information Administration update showed that US oil stockpiles jumped by 6.77 million barrels, while the consensus estimate was for a drop of 849,000 barrels. Gasoline inventories grew by 3.2 million barrels, topping forecasts.    


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