European stocks are fractionally higher on reports that progress is being made in relation to trade talks between the US and China. 

Europe

A report from Beijing said the parties are ‘resolving core issues’ which is taken to mean to be focusing on the finer details of the negotiations. The belief is that talks are on track for phase one of the agreement to be signed, so dealers are cautiously optimistic. Traders remember only too well that in June the discussions were 90% complete before they fell apart, so it is understandable that stocks are only a little higher today.

De La Rue shares have taken their second big knock since late October. The first came when Clive Vacher, the relatively new CEO, announced a profit warning as a way of clearing the deck and managing expectations lower. Today the company confirmed that it swung to a first-half loss of £9.2 million, which compared with a profit of more than £10 million last year. De La Rue halted its dividend, and that’s what did the damage to investment sentiment. Net debt jumped, and the group will conduct a review of the entire business, which suggests that major restructuring is in the pipeline for the company.

Pets At Home are performing well as like-for-like first-half sales increased by 7.6%. The firm said that it now expects full-year profit to be at the top end of market expectations, and that has lifted the share price. Last year the company embarked on a restructuring programme which included focusing more on its veterinary services, which is higher margin, and the move is clearly paying off. It was a shrewd move to pivot towards to the higher margin side of the business.

Compass Group warned that trading conditions in Europe are deteriorating, hence why the stock are in the red. On account of the situation in Europe, the group announced plans to tackle the cost base. The figures for the year just gone were respectable as revenue nudged higher to £22.88 billion, while operating profit dipped to £1.6 billion. The dividend was hiked by over 6%, so the company is clearly not that concerned about costs.   

US

The major indices are slightly higher today as trade optimism continues. The economic reports were mixed as the Conference Board consumer confidence reading slipped slightly to 125.5 from 126.1. It was the lowest reading since June, but it is still well above the levels posted in 2016. The new home sales reading was 733,000 – the highest in 12 years. The report marries up with the building permits update last week which hit a 12 year high too. It is clear the US economy is in robust health. 

Best Buy shares are higher today on the back of the solid third-quarter figures. EPS came in at $1.13, easily exceeding the $1.03 forecast. Revenue ticked up by 1.7% to $9.76 billion, which topped the $9.70 billion forecast. Same-stores-sales is a closely watched metric, and it was 1.7%, while the consensus estimate was 1.3%. The company is bullish heading into the shopping season, and the full-year guidance was raised too, so it was an all-round impressive report.

Dollar Tree shares cut forecasts which sent the share price lower. The discount retailer blamed the tit-for-tat tariff spat for the lowered guidance, and the firm predicts that it will incur costs of $19 million in relation to tariffs. The group now anticipates full-year EPS to $1.70-$1.80, while equity analysts were predicting $2.02. The full-year revenue forecast was below forecasts too.

FX

GBP/USD is in the red as an opinion poll from Kantar showed the gap between the Conservative party and the Labour party has narrowed a little. The update put support for the Tories at 43%, down 2%, and the Labour party is on 32%, up 5%. The small drop in the gap between the two parties encouraged traders to drop the pound. The downside move in sterling hasn’t been huge given the pro-business Conservative party are still enjoying a double digit point lead.

EUR/USD is largely flat today as it has been a quiet day in terms of economic reports from the eurozone. The German GfK consumer sentiment reading ticked up to 9.7 from 9.6. The report showed a tiny improvement on the month, but keep in mind the 9.6 posted in October was the weakest in three years.

Commodities

Gold is now showing a small gain on the day but earlier in the session it slipped to a two-week low. The asset has fallen out of favour with traders in recent months on account of the strength in stocks. The bullish run in equities is a part of the reason why gold has been locked in a downward trend since September, as dealers increased risk appetite has punished gold.

WTI and Brent crude are showing respectable gains on the back of the optimism surrounding the US-China trade situation. China is the second-largest economy in the world and it is the largest importer of oil in the world, so while the trade story is looking positive, the energy is likely to be in demand.

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