Eurozone stocks are largely positive after the European Central Bank (ECB) issued its latest update.

Europe

The ECB kept interest rates on hold, meeting expectations. Mario Draghi, the ECB chief cautioned that the incoming data in the euro area is likely to be weak, but at the same time, the central banker claimed it was too early to be going into detail about the new targeted liquidity programme that will begin in September. Mr Draghi said the chances of a recession are low, and that he is fully committed to achieving the inflation target. Given the slowdown in economic activity in the eurozone in 2019, it is clear the government bond buying scheme was wound-down too early, and it now feels like the ECB are in wait-and-see mode. 

Tesco issued an impressive set of full-year preliminary results. Group operating profit jumped by 34% to £2.21 billion, topping the forecast of £2.07 billion, and group sales increased by 11.5% to £56.9 billion. Full-year operating margin came in at 3.45%, and second-half operating margin excluding Booker was 3.79, so it is clear the company performed better in the latter half.  The supermarket is performing well, but some of the metrics didn’t quite measure up to forecasts, as fourth-quarter like-for-like UK sales ticked up by 1.7%, while equity analysts were anticipating 1.8%. The net debt position edged by 9%, but that was in relation to the acquisition of Booker. Tesco have endured a tough restructuring plan, and now the firm has either met or is close to achieving the majority of its targets. 

ASOS decalred an 87% fall in first-half pre-tax profit, and the ‘large scale transformational projects’ were blamed for the decline in earnings.  The group’s large expansion in Europe and the US was the reason for the swing from a net cash position of £37.7 million to a net debt position of £37.9 million Total sales increased by 14%, and the UK operation posted a 16% rise in revenue, while international sales rose by 12%. The firm acknowledged that the first-half performance was ‘disappointing’ while the group is ‘confident of an improved performance in the second-half’. Gross margin dropped by 60 basis points in the six month period on account of discounting, but that was already known to the market. On the bright side, the group retained its guidance for 2019.

Stagecoach shares sold-off today after the company was been barred from bidding from three UK rail franchises by the Department of Transport (DoT). The government body ruled that because the company didn’t meet the pension rules, they can’t bid for the West Coast, South Eastern or East Midlands franchisees. Firms seeking to take over the running of certain train lines must prove they can cover the risk of the railways pension scheme, and a DoT spokesperson said the group ‘ignored’ the rules.

Indivior shares slumped today after the US Department of Justice (DoJ) has brought charges against the company. The DoJ claim the firm deliberately misled doctors and regulators about the addictive nature of Suboxone Film – a pain killer. Indivor reject the claims. Reckitt Benckiser shares came under pressure too that they as the drug maker was a part of the group when the alleged wrong-doing took place. 

US

The inflation data was mixed today. The headline CPI rate jumped from 1.5% to 1.9%, which exceeded the forecast of 1.8%. On the other hand, the core CPI rate slipped from 2.1% to 2%. Given the rally in the oil market, the difference between the two readings, is likely down to firmer oil prices. The fact that the core CPI reading is now at its lowest level in over a year is a little worrying as it suggests that demand is soft.  

At 7pm (UK time), the Federal Reserve will publish the minutes of the last month’s meeting, where the central bank adopted more dovish language, and gave a strong suggestion that interest rates won’t be moving higher in the foreseeable future. Traders will be keeping an eye the update to ascertain what prompted the Fed to shift its outlook. 

Bed, Bath & Beyond will be in focus today as the company will release its fourth-quarter numbers after the closing bell. The stock has been bouncing back in recent months. In January, the firm posted third-quarter earnings per share of 18 cents, topping the 17 cents forecast, and the guidance was upped, which was well received by investors. Last month, a group of activist investors pushed for the board of directors to be replaced, and for underperforming assets to be sold-off.

FX

GBP/USD was given a jolt higher by the respectable economic updates from the UK today. The GDP estimate for the three months until February was 0.3%, which topped the 0.2% forecast. Industrial output and manufacturing output in February were 0.6% and 0.9% respectively, while traders were expecting 0.1% and 0.2% respectively. The EU is likely to grant an extension to the UK’s exit from the group, and we will hear the answer later tonight.

EUR/USD sold-off on the back of the update from Mr Draghi. Traders are bracing themselves for a softening of the economic situation in the euro-area, and depending on how things play out, the ECB might need to introduce an aggressive targeted liquidity programme in September, and that is weighing on the euro.  

Commodities

Goldhas ticked up again but the metal’s recent run of low volatility continues. Gold has reached its highest level in nearly two weeks, and if it can hold above the $1,300 mark, it might retest the $1,324 area.

Oil saw a jump in volatility on the back of the Energy Information Administration report. Oil stockpiles jumped by 7.02 million barrels, while traders were only expecting an increase of 2.29 million barrels, and to balance out the oil report, gasoline inventories dropped by 7.71 million barrels, exceeding the 2 million barrel drop that forecasts were anticipating. 

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