Europe

The slightly more optimistic tone around trade has seen European markets rebound today after yesterday’s big losses, however one can’t help feeling that US officials appear to be gaming the market, and that despite the change in tone any deal is no closer than it was 24 hours ago.

We’ll probably only know for sure as we get closer to the 15th December, and the decision on the implementation of tariffs on the remaining $150bn of Chinese goods.

After a big fall yesterday, Airbus shares have rebounded after United Airlines ordered 50 Airbus A321 planes to replace a number of its Boeing 757-200’s in news that will not be received particularly well in the White House or at Boeing HQ for that matter. United Airlines are the latest US airline to opt for Airbus aircraft over Boeing’s offering as the US plane maker continues to battle with the fallout from the 737 MAX fallout.

The FTSE100 has again underperformed, probably down to the break higher in the value of the pound which has hit its best levels against the euro since May 2017. It has been notable though that UK focussed stocks have outperformed with the FTSE250 posting decent gains on rising optimism that the Conservatives may well be able to eke out a majority at next week’s election.

Among the best performers Lloyds, RBS, Taylor Wimpey, Barratt Developments, United Utilities and  SSE are all higher as the prospect of Labour being able to implement its manifesto recedes.

M&C Saatchi shares have plunged after the company warned that pre-tax profits would be materially lower than the levels expected at its last interim results. The company said it would be making an £11.6m adjustment to its results following a review by PwC, as well as announcing plans to restructure its UK office in order to improve overall performance.

This is about as bad as it gets for Saatchi, with the sector already under pressure due to the changing dynamics of the digital advertising world on its traditional business model, to score an own goal of this magnitude is excruciating. It also calls into question how the business was being run over the last few years. Management should be congratulated for grasping the nettle so to speak in getting these problems out in the open but questions also need to be answered as to how these errors came to happen in the first place.

The reactions in WPP and Publicis share prices in regard to this news has been muted, suggesting that investors see this story as very much a Saatchi issue and not a wider advertising sector problem.

US

US markets opened higher on the more optimistic noises coming out over trade this morning. Gut feeling suggests that this is a false narrative, however until we get past 15th December markets have to pay attention to it, despite many previous false dawns.

On the data front the latest ADP employment report for November came in at 67k, a surprising miss from the 135k expected, though not the lowest this year. That came in May when we saw a gain of 27k. As a guide to Friday’s payrolls report it isn’t a good omen, given that May was also a weak month for the official payrolls report as well.

Alphabet shares have moved higher despite the news that Google founders Larry Page and Sergey Brin would be stepping down from their respective roles. Google CEO Sundar Pichai, will now take on a dual role as CEO of the umbrella company Alphabet, thus overseeing both  parts of the business.

What this means for the overall business is not immediately clear, however investors appear to be taking the that in the short term its quite likely that very little will change given that both will still retain their seats on the board as well as their controlling stakes in the company.

Salesforce shares are also slightly softer after reporting profits of $0.75c a share, beating estimates of $0.66c a share. The company also revised its full year guidance higher.

In a further blow to Boeing, this morning’s news that United Airlines has put in an order for 50 Airbus 321XLR planes is another sign that the US aircraft giant is on the slippery slope to losing further market share as it strives to restore trust in its 737MAX aircraft. If the truth be known this direction of travel is only likely to increase unless Boeing comes up with a new aircraft design, that doesn’t have the spectre of the two crashes that killed hundreds of people hanging over it.

Slapping an airworthiness sticker on a software patch on the same plane is unlikely to cut it for most passengers, and while some would argue that time tends to cause memories to fade, I would suggest that flying on a plane that has seen hundreds of people perish on it is one that probably won’t.  Passengers instinctively tend to have an aversion to dying, and the lack of trust that this scandal has created around the FAA signing off process, around this aircraft is likely to linger for a while. 

Slack Technologies latest Q3 numbers are also in focus after the markets close, with expectations that we could see a loss of $0.08c a share, for the quarter and expected to post full year revenues of between $600m and $610m for the year.      

FX

The pound has broken out, trading at its highest levels against the euro since May 2017, while also breaking higher against the US dollar on diminishing expectations that the Labour party will be able to get close enough in the polls to deny the Conservatives a majority next week. Given the experience of 2017 this seems a little premature, however short positions are getting squeezed hard, and this is helping pull the pound higher.

The US dollar has underperformed after a disappointing ADP payrolls report for November. Coming off the back of a disappointing ISM manufacturing earlier this week, the latest data continues to give mixed signals as to the health of the US economy. The latest ISM non-manufacturing survey for November appears to have steadied some of those concerns, coming in at 53.9, slightly below expectations, however the internals were quite positive with new orders increasing to 57.1, the employment component rising to 55.5, and prices paid rising to 58.5, all above the October readings. 

The Bank of Canada left rates unchanged today at 1.75%, however they judged it appropriate to keep the outlook unchanged until reviewing it again in January. With many expecting a more dovish tilt the Canadian dollar has rallied after trading sideways over the past week or so at the top of its recent range.

Commodities

With OPEC currently meeting to discuss oil quotas oil prices are higher, as markets speculate as to whether there is a viable consensus around further production cuts, something which Iraq has been calling for. At the moment this seems unlikely, certainly Saudi Arabia don’t seem in any rush to go down that road, but that doesn’t mean a discussion won’t be had.

Despite the rise in equity markets gold prices are only slightly lower, with markets increasingly cautious as to what happens next with respect to tariffs.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination