It’s been a rather mixed week for European stocks after last week’s rebound with the DAX and CAC 40 looking set for a modest weekly advance, while the FTSE 100 has lagged behind.
This week’s price action has been a much more modest affair when compared to the preceding three weeks with punch drunk investors probably using the opportunity to take a bit of a breather in order to reassess their options.
Today’s biggest movers have seen British Airways owner IAG, Royal Bank of Scotland and BAE Systems all post heavy falls.
British Airways owner IAG hit a rather large air pocket after the company announced Q4 revenues of €5.47bn which fell short of market expectations of €5.6bn, with annual revenues also falling short by almost €3bn. Annual profits came in at €2.02bn, while the announcement of a share buyback of €500m did little to support the share price.
Royal Bank of Scotland was this morning finally able to report an annual profit for the first time in a decade, but while this makes a good headline the only reason they were able to do so was because the ongoing issue with the US Department of Justice remains unresolved. The bank did set aside another $1bn in respect of litigation provision in Q4, with $650m of that going towards the DOJ case, taking the overall provision so far to $4.4bn, but that still leaves it well short of what the total bill might be. Very much a case of smoke and mirrors with the headline not really matching the substance, meaning the headline profit number is little more than a mirage.
BAE Systems has been hit by a broker downgrade by JP Morgan after yesterday’s earnings guidance disappointed market expectations.
On the plus side education publisher Pearson announced a better than expected full year profit of £576m, which while down from the previous year was better than expected. The company also announced it would be looking to sell its US K12 school business.
BT Group is also higher after Ofcom moderated its approach on the price controls on the company’s Openreach division for access to the fibre broadband network. The original proposal mooted a charge of £11.23, but this has changed to £11.92 a potential net improvement of £80m over four years.
This week’s sale of five and seven year treasuries doesn't appear to have done anything to push US bond prices lower, in fact bond prices have risen, in the process pulling down yields from their mid-week peaks. This erosion of yield has helped US markets open higher, however they still remain down on where they finished last week, and it would appear that after last week’s strong rebound investors remain a little uncertain as to where we might head to next.
On the companies front General Mills shares are lower after the company announced it was buying natural pet food company Blue Buffalo for $8bn in cash.
On the earnings front Hewlett Packard Enterprises and HP both posed numbers in excess of estimates. HP managed to boost its income as well as giving a strong guidance outlook despite a PC market that remains difficult.
The Canadian dollar is the best performer today after the latest CPI headline numbers came in ahead of expectations, rising 0.7% month on month while core prices on an annualized basis rose 1.8% and their highest level since September 2016.
The pound has also held up fairly well this week despite softer than expected Q4 GDP numbers, however better than expected wages and productivity data along with a positive outlook from Bank of England officials has helped keep the pound on an even keel, pushing it to its highest levels this week against the euro.
Commodity currencies of the Australian and New Zealand dollar have been amongst the worst performers today and this week
Crude oil prices have continued to trend higher as a shutdown in Libya helped to offset any weakness that appears to be constraining the upside. Rising US oil output has helped bring oil prices off their highest levels seen earlier this month but we do appear to have found a short term base in the last two weeks and appear to be edging back towards the 50 day MA
Gold appears to have lost a little bit of its lustre this week on the back of a stronger US dollar and lower US yields, while a stabilisation in stock markets appears to have reduced the allure of this traditional safe haven.
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