market relief

Its déjà vu for the FTSE 100 and DAX 30 as both markets had a positive run during the morning, but have edged lower since lunchtime, and are now showing tiny gains. 

Europe

Since the markets have run out of steam in the afternoon, dealers are a little concerned the market bounce back from late October might be showing signs of weakness. 

IAG shares are in demand today after the group issued an optimistic outlook. The airline group mapped out plans to increase investment by an average of €500 million per year between 2018 and 2022. The aim is to boost average profit by €700 million over the next five years. The company raised its forecast for average seat kilometres to 6%, from 5%. It is impressive that the firm is upping its forecasts at a time when the oil price has hurt the airline sector.

TP ICAP confirmed that full-year results will be at the lower end of the market guidance. The interdealer broker said that revenue for the four months until October rose by 1%, but on a ten month basis, revenue slipped by 1%. The group is trying to move in a different direction after the share price took a hammering in July when a profit warning was issued – which lead to the departure of the CEO, John Phizackerley. The firm now wants to move into growth sectors of the business, like data analytics. The stock has been range bound since mid-July, but a break above 320p, might point to further gains. 

Paddy Power Betfair raised its guidance as the company has high hopes for US expansion. The firm said that third-quarter revenue increased by 12% on a year-on-year basis. Sales at its US operation increased by 22%, and this was the standout performer. The betting group said that ‘key US market opportunities lie online’. Tighter rules around fixed odds betting in the UK, and planned tax hikes in Australia are hanging over the stock. The share price has been broadly moving lower since February 2016, and while it holds below the 200-day moving average at 7633p, its outlook should remain negative.

US

Equity benchmarks are a little lower after a good non-farm payrolls report, and a less optimistic outlook about the US-China trade deal. The US equity markets have made good ground since late October, but today’s move call into question the validity of the bounce back into question. 

A White House official was a little more tempered in their outlook about the possible trade talks with China. Sentiment was lifted when it was reported that President Trump asked the cabinet to draft a trade agreement, but now a US government official claimed there is still a ‘long way to go’. The announcement cooled the mood a little.

The non-farm payrolls report was solid. The headline figure was 250,000, which easily topped the consensus estimate of 190,000. The weak September figure of 134,000 was revised down to 118,000, which took the shine off the headline reading. Unemployment held steady at 3.7% - meeting forecasts. The annual average earnings figure rose from 2.8% to 3.1%.The rise in wages is impressive, and when Americans earn more, they are likely to spend more, which should drive economic activity.

Apple reported fourth-quarter figures last night, and earnings per share (EPS) was $2.91, which exceeded the $2.78 that equity analysts were expecting. Revenue for the period was $46.89 billion, but the consensus estimate was $47.50. The tech giant slightly trimmed its guidance for the Christmas period, and that weighed on sentiment too. The fact the group will no longer report unit sales of iPhones and iPads suggests they don’t want to draw attention to the numbers, possibly because we might be near peak iPhone sales.

Alibaba

Second-quarter revenue on year-on-year basis jumped 54% to Rmb85.1 billion, but analysts expected Rmb86.7 billion. EPS increased by 12% to Rmb7.62, which comfortably topped the forecast of Rmb7.42. E-commerce sill accounts for the vast majority of revenue, and the group is still pressing ahead with its plans to build stores to balance out the dependency on the online business. Economic uncertainty prompted the company to lower its full-year revenue forecast. It now anticipates a 53% increase on last year’s sales figure, and it previously forecasted a 60% increase. 

FX

The US dollar index initially moved higher after the US jobs report, but has since handed back some of the gains and is now flat on the day. The greenback may have lost a lot of ground in the past two days, but it remains in its wider upward trend.

EUR/USD has been helped by the slight dip in the greenback. Italy and Germany revealed disappointing manufacturing PMI reports, and the French update was underwhelming too. It doesn’t bode well for the currency bloc that the manufacturing sector is growing at a slower rate. Despite the upward move today, while it remains below the 1.1500 region, its outlook might remain bearish.

GBP/USD is a little lower today, but it is encouraging to see that it held onto most of the impressive gains it made yesterday. The uncertainty surrounding Brexit, is still hanging over the currency, but the mood has lightened a little.

Commodities

Gold has been lifted by the initial dip in the US dollar. The metal is continuing to enjoy a strong inverse relationship with the greenback. The commodity has been broadly pushing higher since mid-August, and while it holds above $1,214, the bullish move might continue.

Oil is trading lower again as traders are worried about high levels of production from OPEC, rising US stockpiles and concerns about future demand due to global economic uncertainty. The US are to press ahead with sanctions on Iran as of Monday. OPEC increased production recently is no coincidence given that Iranian sanctions in the pipeline. 

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