Europe

After an initially positive start, helped by better than expected PMI numbers, European stocks have rolled over into the red, after President Trump decided, as a post-Thanksgiving gift to re-impose tariffs on steel and aluminium imports from Brazil and Argentina.

He also reiterated previous criticisms of the US Federal Reserve that they should continue cutting rates in order to counter the sharp falls being seen in both the Brazilian and Argentinian currencies, as he accused both countries of devaluing their currencies.

He seems to have missed the point that the reason the currencies of both Brazil and Argentina are weak is not down to any deliberate or cunning plan on the part of either government, but merely because both their respective economies are in big trouble due to bad governance. Unfortunately, little details like that, don’t appear to register with this particular President, which as an exercise in economic illiteracy, is hard to beat.

Trump went on to insist that China wanted to make a deal before getting on AF-1 to head to London for the NATO summit, however he’s been saying that China wants to make a deal for eighteen months and the market is still waiting.

On the companies front Ted Baker shares dropped sharply this morning after management reported that its inventory estimates had been overstated by over £20m, and sending the shares down 15% to their lowest levels since 2009. The implosion of this brand has been nothing short of spectacular in the last two years, having seen its founder Ray Kelvin depart earlier this year over improper behaviour, the company has lurched from one crisis to another. While the shares have recovered some ground from the lows investor confidence in this brand has collapsed.

It’s not as if the company doesn’t make good products, it does, but the governance hasn’t been particularly good and this morning’s news is the cherry on the top of a year to forget. The further falls in the share price could put the company in play for an acquisition, or reawaken speculation that first surfaced in the summer, that Ray Kelvin, who still owns 35% of the shares, might look to take the company private with help from private equity money. This may help limit the downside, ahead of next week’s Q3 numbers which are expected to take a hit from the unrest in Hong Kong, where the company has a number of outlets.

Burberry shares have also fallen sharply on the back of this morning’s awful retail sales numbers of Hong Kong which showed a decline of 24.3% year on year.

Ocado shares have also fallen sharply after issuing a £500m convertible bond, along with a retail update, which fell slightly shy of expectations on revenue growth of 10%-11%, below an expectation of 12. The shares had finished last week on the up after announcing a deal with one of Japan’s largest supermarkets Aeon. This morning’s news seems to have given investors reason to lock in some gains ahead of Ocado’s first half numbers due next week. 

US

At one point this morning US markets looked set to open at new record highs, however the latest intervention by President Trump appears to have put paid to that, with the re-imposition of tariffs on Brazilian and Argentine aluminium and steel imports, and which has seen US markets open mixed on their first full trading day back from the Thanksgiving break.

Some disappointing economic numbers haven’t helped the mood either after the latest ISM manufacturing survey for November posted weak numbers across the board, while construction spending dropped 0.8% in October. Markets were expecting a 0.4% gain.

On any other day this should have seen the old bad news is good news narrative kick in, as it means that the Fed would probably be more inclined to cut rates sooner than later, however today’s sell off appears to be being driven by the Trump tweet narrative today, as markets push out the likelihood of a US, China phase one deal into next year.

Stocks in focus include Disney after Frozen 2 set a Thanksgiving record over the weekend, raking in $123.7m as the US went Black Friday crazy. On line sales also set a record with US retailers like Amazon and Walmart set to do well.

Frozen 2 toys sold well as did video games like FIFA20, and with Cyber Monday set to follow suit, these next few days could well set the tone for the lead up to the Christmas period, not only for the US consumer but the US economy as well.

FX

Of all the manufacturing numbers to come out and miss expectations, the latest ISM manufacturing number wouldn’t necessarily, have been top of the list, but today’s November numbers missed the mark on all counts. Headline number came in at 48.1, the employment component slipped back to 46.6, and prices paid and new orders also missed expectations, below 50.

As a result, the US dollar has slipped back across the board, with only the Canadian dollar performing worse.

The pound has come under a little bit of pressure, on the back of an opinion poll that has the Labour party narrowing the gap to the Conservative party.

The Australian and New Zealand dollar have both outperformed on the back of this morning’s better than expected Chinese PMI numbers, with the Kiwi hitting its highest levels since early August in the process. 

Commodities

Despite the weakness in stock markets gold prices are struggling to rally, despite today’s falls in global stock markets. For now, gold markets appear to be taking their cues from today’s manufacturing PMI numbers which put equity markets on the front foot early on. It is only since President Trump’s tweet that things have turned around, which suggests that maybe this dip in equity markets could be used as a buying opportunity. Today’s finishing price for gold could well clue us in on which way the market is likely to go.

Crude oil prices have also started the week on the front foot, having seen big declines last week, ahead of this week’s OPEC meeting on speculation that the cartel could well cut production further, after the Iraqi oil minister said that a further cut in production could be considered later this week. Even allowing for that possibility, which seems unlikely at the moment, there also appears to be optimism over the latest China data which could mark the potential for increased demand in the months ahead.

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.