The FTSE 100 is underperforming against its Continental counterparts as healthcare and consumer stocks have lost the most ground. 

Europe

Broadly speaking, volatility in Europe has been low in the wake of the US-China trade deal having been signed yesterday. The interim trade agreement between the two largest economies in the world took a long time to be hammered out, so now dealers are wondering what will be the next big story to move the markets. Bullish sentiment has been in short supply, but then again, the bears have been quiet too.        

Pearson’s US higher education business continues to hold the company back as the group confirmed the division saw revenue fall by nearly 11%, and keep in mind the department accounts for nearly 25% of total revenue. The publisher issued a profit warning in September, so investor sentiment has taken another battering. The firm said that annual operating profit will be approximately £590 million, and that would be below forecasts. For the year 2021, the group predicts that operating profit will be £500-£580 million, so it’s likely to be a sizeable fall from this year’s number. The CFO, Coram Williams, will be stepping down, and keep in mind the CEO, John Fallon, revealed plans last month to retire in 2020. The stock fell to a 10-yar low today, but it’s off the lows of the session. 

Associated British Foods had a respectable 16 week period until early January as the clothing and the sugar business registered rises in revenue. Primark, the low-cost clothing brand announced a 4.5% rise in total revenue – the unit is one of the few success stories as far as retail is concerned. The low prices are proving popular with customers. The sugar division has usually counteracted the upbeat figures from Primark, but the operation posted a 7% jump in revenue. The stock is showing decent gains.

N Brown, the fashion house with a financial services business attached to it, issued a profit warning this morning. The company cited ‘highly promotional market’ for the warning on earnings. Slashing prices to entice perspective clients has been the reason behind several profit warnings in the sector in recent times. The squeezed middle are keen nowadays to seek out a bargain, so retailers like N Brown are under pressure to compete with e-commerce firms ,and well as low-cost brands like Primark. The ‘promotional’ activity has cost the company dearly as the stocks is down 24% today.              

US

It’s another record-day for the S&P 500 plus the Dow Jones as the feel-good factor from the US-China trade deal is still influencing markets. The indicators today painted a positive picture of the economy. The jobless claims rate slipped to 204,000 from 214,000. The Philly Fed manufacturing index jumped to a six-month high of 17. Retail sales increased by 0.3%, meeting forecasts, while the report that strips out auto sales showed an increase of 0.7%. The economy remains in rude health despite the trade spat with China.

Tesla shares were downgraded by Morgan Stanley to ‘underweight’ from ‘equal weight’ due to worries the major surge in the price can’t be sustained. In the same note the bank, raised the price target by $110 to $360, while it was a generous increase to the price target, it is still well below the current level of $499.

Bank of New York Mellon shares are in the red on the back of the mixed quarterly update. EPS came in at $1.01, while the consensus estimate was $1.04. Revenue for the period was $3.99 billion and traders were expecting $3.94 billion. Full-year costs are tipped to increase by 2%, while the net interest revenue is expected to drop by nearly 5% in the quarter ahead. The not-so-hot guidance weighed on the stock.

Morgan Stanley impressed Wall Street by posting a 46% rise in final-quarter EPS to $1.30, which smashed the 99 cents forecast. Revenue jumped by 27% to $10.86 billion, comfortably topping estimates. The stock is up nearly 7%.

FX

According to the Bank of England (BoE) credit conditions survey lending to corporates fell to a level last seen during the credit crisis – a drop of 9.2% in the final quarter of 2019. Keep in mind it only fell by 3.5% in the third-quarter. This worrying seeing as credit is crucial for business, and tighter conditions is likely to hurt the economy. Nonetheless, GBP/USD is higher on the session. 

The minutes from the ECB’s December meeting painted the region in a slightly better light. The view was the manufacturing sector was could be bottoming out and that some inflationary pressures existed. Philip Lane, the ECB’s chief economist, described the inflation rate as ‘generally subdued’ but there were signs of a ‘mild increase’. The strong greenback hit EUR/USD.    

Commodities

Gold has been hurt by the firmer US dollar. The inverse relationship between the two markets continues to play out. The fact the Dow Jones and S&P 500 racked up fresh record-highs too is hurting gold also as dealers are clearly in risk-on mode today. The metal has fallen sharply since the Iranian situation calmed down but while it holds above the $1,536 area, the wider uptrend should continue.

The signing of the US-China interim trade deal yesterday has boosted WTI as well as Brent crude. China in the largest importer of oil in the world, and under the terms the new deal, it has committed to purchasing $50 billion worth of US energy exports. Some people are sceptical of the pledge as they feel it is too ambitious. It is worth remembering that oil has been weak recently so the US-China story acted as a catalyst for bargain hunters.  

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