Market Outlook

FTSE100 index on tenterhooks as Brexit and trade-talks take hold

A weekly run through of the key UK and US indices, from Opto.

 

 

FTSE100

Boosted by BP’s [BP] and Ocado’s [OCDO] strong earnings, the FTSE100 started the week rallying 1.1% on 4 February. The British oil major reported underlying cost profit, that was considerably higher than the $11.8bn forecasted by the company, of $12.7bn in 2018, and saw its fourth-quarter profit jump more 65% when compared to the same period in 2017.

And while Ocado’s stock did initially climb 4% after its 2019 guidance forecasted 10-15% growth from its retail operations, the British online supermarket saw £1bn wiped off its stock market value by the middle of the week as its flagship warehouses became engulfed in flames. Ocado’s share price ended the week down 12%.

Having gained around 5% since the start of the year, the FTSE100 is trading within 9% of its all-time high of 7778.80p. However, with Theresa May in talks with Brussels this week over the Irish backstop and US representatives in Beijing for the latest round of talks aimed at resolving the ongoing US-China trade, the British index is on tenterhooks.  

9%

Amount the index is off all-time highs

The FTSE meanwhile was up near 1% on 11 February. Sterling meanwhile fell below $1.29 on the news that the UK’s GDP grew just 1.4% in 2018 – its slowest since 2012 and the UK’s construction output in the fourth quarter of 2018 fell 0.3%.

 

S&P 500

While the S&P 500 was lifted by a strengthened US dollar from the news of the US economy’s strong jobs growth in December 2018, it took a break last week, closing 0.6% down over the course of the week. 

The American index was struck by a disappointing earnings announcement from tech giant Amazon [AMZN], capping gains. While the company reported earnings that beat across the board, CFO Brian Olsavsky warned analysts that the scaling back of investments last year will likely lead to increased spending in 2019. Subsequently, the company lowered its first quarter guidance to between $56bn and $60bn, at the low end of the $59.8 expected by analysts, according to Reuters. Amazon’s stock has been on a relatively downward trend since its earnings release on 31 January, falling over 7% and closing at 1588.22p on 8 February.

A similar case occurred with Twitter [TWTR] and General Motors [GM], which both reported fourth quarter earnings that beat analysts’ expectations, with the social media website’s $909m in revenue topping predictions of $868m and the automaker’s revenue reaching $38.4bn compared to $36.48bn. However, both lowered their full-year guidance, sending their stock down 11% and 0.5% respectively by the end of the week. 

 

Dow Jones

Although Wall Street saw the Dow Jones Industrial Average rally to its strongest levels since December 2018 on 4 February, reaching 25,239.369, it ended the week 0.5% down. The 30-stock index fell 63.20 points to 25,106.33, making it the first three-day losing streak since December.

“The fear factor over the trade war has crept back into the market,” Peter Cardillo, chief market economist at Spartan Capital Securities, said. “That's going to send the market for a bumpy ride.” The rising uncertainty about the ongoing US-China trade negotiations and growing concerns over the global economy’s slowing growth coincided with disappointing earnings.    

“That's going to send the market for a bumpy ride” - Peter Cardillo, chief market economist at Spartan Capital Securities discussing the potential impact of US-China trade war uncertainty

Walt Disney [DIS]’s 2019 first quarter earnings saw its earnings per share decreased 36% to $1.86 from $2.91 in the prior quarter. While the media behemoth’s theme parks and TV networks led the way with growth, its film unit’s revenue took a hit, falling 27% from the previous quarter to $1.8bn.

 

Nasdaq

Similar to that of the S&P 500’s performance, the tech-heavy Nasdaq index ended the week down 0.6% on 8 February after a slew of positive corporate earnings results offset a two-day losing streak.

While share prices of Alphabet [GOOGL], GoPro [GPRO] and Zynga [ZNGA] all jumped after the companies reported earnings that topped analysts’ expectations, Take-two Interactive’s [TTWO] stock dropped 14% after its earnings release, due to weaker than expected guidance for both its revenue and earnings-per-share.

Overall, however, it was Amazon’s 2.38% drop by the end of the week, along with Apple’s [AAPL] 0.5% decline that dragged the tech-heavy Nasdaq down.

Nasdaq meanwhile is in a bidding war with Euronext to buy Norwegian stock market operator Oslo Børs VPS. Nasdaq announced a public offer on 4 February to acquire all its issued shares for NOK 152 per share, which Euronext then countered with a NOK 158 offer on 11 February.

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