US-China trade hopes grow, Tesla reveal jobs cut

Steven Mnuchin, US Treasury Sectary, has proposed the idea of easing up on the Chinese tariffs. Robert Lighthizer, US Trade Representative, isn’t so keen to ease up on China. Even though nothing has been confirmed, the discussion comes ahead of the US-China trade talks that are due at the end of the month. It was recently reported that China are keen to offer a path to eliminate the trade imbalance with the US, and that added to the bullish mood. Beijing have offered a six-year import boost to the US, it was reported.

EUROPE

Ryanair shares are a little lower after the airline warned that full-year profit would be in the range of between of between €1 billion and €1.1 billion, excluding the Lauda unit, while the previous guidance was between €1.1 billion and €1.2 billion. The airline cited tougher competition from the likes of Wizz Air, and deeper discounting on fares for the lowering of the guidance. The company warned on profits in October, and traders are mindful of that given today’s news. The stock has been in decline recently, and while it holds below the 1,000p mark, its outlook should remain bearish, and support might be found in the 900p region.

Rio Tinto said that iron ore production increased by 2% last year, in-line with forecasts, and the company expects it to increase this year too. The iron ore division is a major part of the company’s overall businesses, so a healthy outlook bodes well for investors. Aluminium production slipped by 3%, while copper output jumped by 33%.

Sophos shares slumped after the group issued a trading update. The firm has had a respectable start to the year as billing for the first nine months grew by 2% year-to-date. The firm cautioned that trading is expected to be subdued, and it foresees a modest decline in full-year billing. The group has suffered a couple of severe sell-offs in the past six months as a slowdown in sales, and a failure to reiterate targets has rocked investor confidence. The stock has been in decline for months, and if the bearish move continues it might target the 250p region. 

US

Indices are still benefitting from last night’s report that Steven Mnuichin is contemplating lifting some or all of the tariffs on Chinese goods. The optimism has kept the major US equity benchmarks in their recent upward trend. John Williams, New York Fed President said he isn’t worried about seeing signs of inflation, and the central banker said interest rates are closer to normal. The comments from Mr Williams should make traders less fearful that the Fed will continue down the path of hiking, and that has added to the upbeat sentiment.

Netflix shares are in the red after the group revealed a mixed quarterly update last night. Earnings per share were 30 cents, which topped the 24 cents forecast. Revenue was $4.19 billion, while equity analysts were expecting $4.21 billion.  In the US, the group added 1.53 million new subscribers, slightly ahead of estimates, while 7.31 million subscribers were added, easily topping the 6.14 million forecast. Some investors are worried about the amount of money being spent on content, but Netflix are facing competition from Amazon and Disney. Operating margins fell to 5.2% from 7.5% a year ago. The stock has been driving higher since late December, and if the bullish move continues it might target the $385.00 region.

Tesla shares are in the red after company confirmed it will trim its full-time workforce by 7% in order to make cheaper Model 3 cars. Elon Musk, the CEO, cited intense competition for the restructuring plan, and Mr Musk said that profit in the fourth-quarter is likely to be below that of the third-quarter.  

The University of Michigan consumer sentiment reading dropped to 90.7, down from 97 in December. It is possible the government shutdown played a role in the underwhelming update. 

FX

GBP/USD is lower on the session as political uncertainty hangs over the pound. The UK is set to leave the EU in late March, and we are still none-the-wiser about the next move. Theresa May will reveal a new deal on Monday, but given her crushing defeat in the commons earlier this week, dealers aren’t holding out much hope.

USD/CAD sold-off after the latest Canadian CPI figures topped forecasts. The December reading was 2%, which comfortably topped the 1.7% forecast. The currency pair managed to recoup some of the ground that was lot on the back of the announcement. 

Commodities

Gold has been hit by profit taking, The US dollar is a little firmer, but that is only part of the story. The metal has enjoyed a good run for the past two months, but it lost momentum as it neared $1,300. Dealers decided to bank some of their profit. Should the metal fall further, support might be found in the $1,270/65 region. 

Oil has rallied after it was reported yesterday that OPEC’s output fell in December. Saudi Arabia cut its output by more than expected, and that showed traders they mean business in relation to the OPEC and partners coordinated production cut.

For further comment from David Madden, please call 0203 003 8907 or 078 954 50516.

Email: marketcomment@cmcmarkets.com

Follow CMC Markets on Twitter: @cmcmarkets

Follow David Madden (Market Analyst) on Twitter: @dmadden_CMC

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