It was another mixed finish for US markets yesterday with the Nasdaq slipping sharply after Alphabet shares suffered their biggest one day fall since 2012 after reporting a miss on one of its key growth ad sales metrics.

This didn’t stop the S&P500 from posting yet another record close yesterday, nor will it prevent the S&P500 from opening at a new record high later today after Apple’s latest numbers and forward guidance cheered investors, as attention turns to today’s Fed meeting.

These will be closely watched for any changes to the Fed’s views on the US economy in the wake of the recent downgrade to their forecasts in March and last night’s intervention from President Trump who called for the central bank to cut rates by 1% and to restart quantitative easing, despite last week’s better than expected Q1 3.2% GDP number. The President’s rationale for this call appears to be an inflation level that has fallen below the Fed’s target rate of 2%.

This presents a problem for Fed chair Jerome Powell as he tries to navigate an economy that continues to give mixed signals as to its overall health but still remains the best house in the neighbourhood when it comes to the underlying economic numbers. Quite simply the data doesn’t warrant a reduction in interest rates, however the continued resilience of the US dollar could present a problem if it continues to rise at its current rate.

Apple shares look set to open higher later today despite Q2 numbers that were broadly in line with expectations. Revenues came in at $58bn, while profits came in at the top end of estimates at $2.46c a share, or $11.6bn. Apple raised their outlook for Q3 on the back of improving demand in Chinese markets, and it was this upbeat tone as well as a new record of $11.5bn in revenue from its services division, a rise of 16%, and sent the share price back well above $200 in afterhours trading.

With most of Asia and Europe closed for the May Day holiday and Golden Week, the UK market is the only major market open ahead of the US open with the FTSE100 opening higher with the main focus on the Fed meeting later today, as well as a raft of earnings announcements.

With the shares languishing just above 30 year lows, after the collapse of the Asda merger deal, Sainsbury’s management were buoyed yesterday by news that the food retailer had managed to recover its position as the UK’s number two supermarket in terms of market share, according to Kantar data.

As the saga of the Asda deal took up management attention there had been a concern that management were losing focus on the underlying business, particularly since Sainsbury peers were posting numbers which were broadly beating expectations, while their like for like sales excluding fuel have been in decline, to the tune of 0.2% year on year. In terms of sales growth clothing was a particular weak spot declining 0.8%, which suggests that there “Tu” range probably needs a revamp.

Most of this underperformance came in the second part of the year, which suggests that management may have been distracted by the intricacies of getting the Asda deal past the regulator.  

This morning’s full year numbers go some way to assuaging some of those concerns as full year pre-tax profits came in ahead of expectations, rising 7.8% to £635m, despite a £60m hit as a result of the failure of the Asda deal, while total group revenue also improved by over £500m taking it over £29bn.

While the underlying numbers are better than expected, the decline in like for like sales does raise concerns about whether or not Sainsbury management have a plan B, when it comes to taking the business forward to address the challenges of a “highly competitive and very promotional” retail market.

On the subject of clothes retailers Next PLC’s latest trading update showed that high street retail remains a difficult market place as full price sales declined 3.6% for the thirteen weeks to 27th April, which was still better than expected. Online was a more positive picture with gains of 11.8%, helped by a strong February performance.

This outperformance in this quarter is not expected to be extrapolated out into the rest of the year with Next keeping full year guidance unchanged at £715m.

Persimmon is the latest UK house builder to announce a trading update, ahead of its AGM later today. The company has reported that sales reservations were lower, due to what they describe as a more targeted approach to releasing homes to market. Forward sales are expected to come in at £2,698m, below the levels we saw in 2018, with 350 active sales outlets for the year to date. Average selling prices on the other hand are expected to be moderately higher at £237,850.

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