Yesterday’s surprise suspension of some China tariffs by the US certainly had the required effect in driving stock markets higher, but does it really change the overarching narrative of a US administration and China that continue to be at odds over trade, as well as intellectual property?

Probably not, but it has blunted some of the pessimism that had started to seep into sentiment over the course of the last few days. The big question is whether it will last and it is here that optimism is likely to give way to realism, with the extent of this current rebound likely to have limits, particularly if the situation in Hong Kong deteriorates further and prompts a response from China.

Investors need to remember that while some of the more consumer sensitive tariffs have been delayed until the 15th December, and some dropped completely, the ante is still higher than it was before President Trump announced the tariffs increases, at the beginning of the month.

Asia markets have followed the move higher that we saw in Europe and the US yesterday, though these gains were tempered somewhat by the fact that the latest Chinese economic data showed that the economy in July slowed sharply.

Industrial production came in at 4.8%, a 17 year low, while retail sales also slowed sharply, rising 7.6%, down from the rebound in June to a June’s rebound to a 14 month high of 9.8%.

As such European markets have open mixed with the German DAX opening lower after the German economy contracted by 0.1%in Q2, while the FTSE100 opened slightly higher, with basic resources acting as a bit of a drag on the back of the disappointing China data.

The construction sector has been in the news for all the wrong reasons in recent months, but one company has been able to set itself apart from the carnage, though you wouldn’t know it judging by the performance in the Balfour Beatty share price, which is near three year lows.

Having avoided falling into Carillion’s clutches a few years ago company management realised early on that the business needed massive restructuring, and embarked on its “Build to Last” program in 2015.

Under the leadership of CEO Leo Quinn the company saw profits rise in 2018 to £123m, despite a fall in revenues. This improvement has continued in the first half of this year with revenues increasing to £3.88bn, up from £3.83bn over the same period a year ago, with all areas of the business showing a decent contribution. Even the much maligned UK construction business saw underlying profits increase sharply to £17m, a big rise on the same period last year.

Pre-tax profits for the whole business increased to £64m, from £56m, with the net cash position of the business improving to £290m, an 80% increase from a year ago, with the company raising its guidance in this particular area.

The order book has also improved by 5%, with £13.2bn worth of work, driven primarily by increases in US construction.

It would appear that the company’s strategy in only focussing on “higher quality” work has allowed the business to continue to maintain healthy margins in terms of the type of work it takes on, reducing the risk to its cash flow. In summary, the UK construction sector may well be suffering but Balfour Beatty appears to be going from strength to strength.

FirstGroup shares are also in focus after the company won the bid to run the West Coast mainline between Glasgow and Euston, along with Italian company Trentitalia, who will replace Virgin Trains.

Admiral Group has also announced its latest numbers for its first half of trading, with turnover rising 6% to £1.76bn, and pre-tax profits up to £220m, with the business managing to absorb the impact in the Ogden rate which calculates how much compensation is set for people who are seriously injured in accidents. 

Customer growth has been solid across all of divisions, with the UK business outperforming relative to its other businesses.

The pound has managed to stabilise a little in the last 24 hours and claw back a little bit of ground after wage growth rose to its highest levels since before the financial crisis at 3.9%. Today’s inflation numbers could well offer further respite to consumers if they come in as expected.

In June the headline CPI came in on the Bank of England’s target rate of 2%, and could well slip back to 1.9%, which would mean that real wages are rising at 2% per annum, though with RPI at 2.9% it sounds better than it is. Core prices are also set to slide as well, down to 1.8%.

Given all the doom and gloom surrounding Brexit, and concerns about job losses, this is welcome news, though how long it will last remains to be seen.

US markets look set to open modestly lower as the euphoria of yesterday starts to fade a little.

Cisco Systems is in focus later today with its latest Q4 and full year update. At its last quarter Cisco posted profits of $0.77c a share, up 18% from the same period a year ago. Revenues also rose nicely, coming in at $13bn, with its security division sales helping drive the rise.

The company was fairly sanguine about the effects of Chinese tariffs saying that modifications to its supply chain would mitigate some of the negative effects, however given recent events this could be a concern as the economic outlook has deteriorated considerably since that statement was made. Profits are expected to come in at $0.81c a share on revenues of $13.35bn.

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