Europe

It’s been a positive day for markets in Europe as the bi-polar nature of the narrative around trade became more optimistic, after China’s Ministry of Commerce said that they would be buying more US pork and soybean products, with the FTSE100 hitting its highest levels since early August.

Coming on top of yesterday’s comments by President Trump that a trade deal with China may be closer than people think, we’ve seen markets in Europe post their first day of gains this week, with the FTSE100 leading the way. 

This optimism appears to currently outweigh concerns about impeachment surrounding the US President, and the controversial telephone conversation President Trump had with the Ukraine President Zelensky, though we have come off the highs in the afternoon with US markets acting as a bit of a drag, as testimony begins on Capitol Hill over the White House whistle-blower allegations.   

Pearson’s share price has seen a very large drop to one year lows, after the company warned that profits for 2019 were likely to be at the lower end of its expected guidance.

Having sold off a chunk of assets in recent years the publisher is now more exposed than ever to the US education sector, which is expected to see a decline of 3% in its revenues for the nine month period, ending 30th September. The US higher education courseware business is expected to see a decline of between 8% to 12% in 2019, well below previous guidance of 0% to 5%.

Imperial Brands has seen its share price fall sharply after the company announced that it was cutting its revenue guidance on the back of concerns that the health problems now being expressed about vaping could result in a sharp slowdown in sales.

In August we heard early reports about a series of deaths from the 18-35 age group which may have been linked to vaping. These reports have now turned into a torrent and ultimately nixed attempts by Altria and Philip Morris to come back together after an 11 year separation.

The tobacco industry is now facing the prospect of an existential crisis, with a crackdown on normal cigarettes already cutting into its profits, e-cigarettes were supposed to be the next key growth area. This strategy now appears to be under threat after the US threatened to ban e-cigarettes from the market, until the US Food and Drug administration has done a more significant study.  There is also the not insignificant threat that the sector could face which could send the sectors earning potential up in smoke.

Also falling British Airways owner IAG has warned that full year profits will be 6% lower than last year due to the disruption caused by the strikes by pilots, that caused widespread disruption to its business.

On the upside JD Sports Fashion is higher, and approaching new record highs on the back of encouraging Q1 results from Nike earlier this week, which showed that the company has continued to outperform despite concerns about a slowdown in China. JD Sports sells a lot of Nike goods and as such appears to be getting a decent read across as a result

US

Initial gains in the lead up to the US open soon disappeared in the wake of the release of the whistle-blower manuscripts which alleged that White House officials tried to cover up the contents of the Presidential conversation with the Ukraine President, as well as other key conversations, that might have breached national security guidelines. The weakness continued as director of National Intelligence Joseph Maguire began testimony to the House Intelligence Committee, over the release of the documents.

Beyond Meat shares have taken a trip higher after McDonalds said they would use the company’s meat patties in Canada in an experimental burger in 28 restaurants in Ontario.

On the IPO front, Peloton shares priced at $29 a share, at the upper end of expectations, giving it a valuation of $8.1bn, nearly double its recent valuation, helping management raise over $1.2bn, not too shabby for yet another loss making unicorn.

The company may have over 1m members and sold more than 400k bikes at $2k a pop but it still hasn’t made a profit for more than three years. In 2018 revenue came in at $435m while this year the company is on course to return $915m, which is a nice increase. This can’t obscure the fact that losses also grew well over $180m. However you add the numbers up, the company needs to sell an awful lot more bikes if its ever to break even, let alone make a profit.  It will be interesting to find out whether investors agree when the shares start trading later today.

On the data front the latest US weekly jobless claims showed an increase to 213k from 210k while the final iteration of US Q2 GDP numbers came in unchanged at 2%.

FX

The more positive outlook for risk has seen commodity currencies undergo a modest rebound, with the New Zealand dollar leading the way, though part of the reason for the outperformance in the kiwi is probably down to the fact that the RBNZ left interest rates unchanged, with the central bank saying that the it was unlikely that we might see further easings in the near future.

The Australian dollar also found itself moving higher in sympathy and ahead of a key rate decision itself, which comes out next week.

The euro has remained under pressure pushing back to its lowest levels in over two years, helped by a rebound in the US dollar, and the resignation of a hawkish voice from the European Central Bank governing council Sabine Lautenschlaeger, reportedly over disagreements with the central banks overly dovish monetary policy.

The pound has traded in a fairly tight range today in the wake of yesterday’s weakness and scenes in the House of Commons which saw MPs turn on each other in a manner that made for unsavoury viewing. If last night’s events are any guide getting consensus for any kind of deal is going to be virtually impossible without a change of MPs, which means that in the absence of any consensus the options facing MPs now has narrowed to two, no deal, or an extension.

Commodities

Crude oil prices are on the slide again over concerns about weak demand, and the prospect that Saudi supply will likely come back on line quicker than expected, after the attacks of earlier this month.

Gold prices are slightly higher after yesterday’s sharp falls with the slightly stronger US dollar helping to keep a lid on it, however there is still strong support at the $1,480 level which has supported the yellow metal since early August.

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