News

European stocks higher on trade hopes, Uber driving lower

European equity markets are broadly higher heading into the close as traders are still hopeful about the US-China trade situation. 

Europe

Xi Jinping, China’s premier, called for international trade tensions to be diffused through talks. Traders took those comments as a sign the Chinese lawmaker is keen to progress down the route of trade negotiations, so equity dealers continued to buy into the markets. 

 Associated British Foods’ shares pushed higher today on the back of respectable full-year figures. Adjusted EPS as well as revenue edged up by 2%. The group issued an optimistic outlook too, as it expects another year of strong profit plus margin growth in groceries. Primark has traditionally been the bread-winner for the group, and it will expand its selling space next year – which is bullish seeing as many high street retailers are feeling the pinch. The sugar operation has held the group back for years, but higher EU sugar prices should benefit the unit this year.  

Imperial Brands’ shares as higher this afternoon as the group posted a 5% increase in annual revenue, but the group is still facing major problems. Operating profit decline by 8.7%, while net debt edged up. The sector as a whole in under pressure as cigarette sales in western economies are in decline, and serious questions are being asked about the health implications of vaping. Alternatives to traditional tobacco products like e-cigarettes as well as vaping were previously seen as a potential money spinner, but a string a vaping related deaths has cast a massive cloud of uncertainty over the sector. Tougher regulation as well as changes to social attitudes has caused a drop-off in cigarette sales, and now there are huge concerns the vaping industry could see its potential go up in smoke should the regulators put the squeeze on the sector.   

Pandora shares sold-off sharply following the company’s warning on sales. The firm confirmed that third-quarter operating profit declined by 25% to DKr891 million, undershooting forecasts. Revenue slipped by 11%. Unrest in Hong King was cited for the poor performance. The quarterly figures were disappointing but the outlook was worse. Pandora now foresees negative organic growth of between 7-9%, while the previous forecast was between -3% and -7%. The operating profit was trimmed too. Alexander Lacik, the CEO, claimed there is no ‘quick fix’ the company’s troubles – which added to the negative sentiment.

US

Optimism in relation to the US-China trade situation is still doing the rounds, although the major US indices are slightly off their record highs. The final reading of the ISM non-manufacturing figure was 54.7, which topped the forecast of 53.5, and keep in mind the flash reading was 52.6 –which was the weakest in three years. The update has tempered concerns some traders had about the services sector.   

Uber shares are lower on the back of the third-quarter figures that were posted last night. The quarterly loss per share was 68 cents, while equity analysts were expecting a loss of 81 cents. Revenue was $3.81 billion, slightly topping forecasts. In the three month period the group registered a loss of $1.16 billion, which included stock-based compensation charge of $401 million. Many investors might be frustrated at the massive compensation package seeing the group is burning through cash. The group raised its fourth-quarter guidance, but still expects to register a loss of $2.8-$2.9 billion.   

Shake Shack shares sold off sharply as traders were spooked by the fact the group missed the same-store sales forecast. In the third-quarter, same-store sales in increased by 2%, but traders were expecting an increase of 2.5%. Some aspects of the update were positive as net income jumped by 17%, while revenue surged by 32%. The group now predicts that same-store sales for the year will be roughly 1.5%, while the previous forecast was 2%. The sharp move lower in the stock price seems excessive given the business is still growing. 

Peloton’s first-quarter loss narrowed to $49.8 million from in excess of $54 million in the same quarter last year. Revenue in the three month period more than doubled to $228 million too, but the positive numbers couldn’t help lift the stock price as it is down in excess of 3%.   

FX

GBP/USD has been pushed lower by the rise in the greenback. The US dollar index was helped along by the ISM non-manufacturing update. The UK services PMI report for October came in at 50, while the consensus estimate was 49.7, a reading of 50.0 denotes zero change in the rate of expansion. The report was underwhelming, but it could have been worse. Opinion polls focusing on the December general election are likely to play a big role in the pound’s performance in the months to come.    

EUR/USD is feeling the full-force of the dollar’s rally. It has been a quiet day in terms of economic updates from the euro-area so the euro is being dragged about by the greenback. Spanish unemployment increased by nearly 98,000 last month, while the consensus estimate was for a jump of only 62,000. The euro has traded below the lows of late October and a further decline might see it target 1.1039 – the 50-day moving average.    

Commodities

The firmer US dollar has dented gold. The metal is listed in US dollars and there has been a strong inverse relationship between the two markets, so a rally in the greenback often hurts gold. The fact that US equity markets have just retreated from record-highs is a factor as the sentiment this week is still clearly bullish, hence why there isn’t much appetite for safe-haven plays like gold.    

The optimism that still surrounds the US-China trade deal has boosted the oil market again. China is a major importer of oil so any steps towards the signing of phase one of the trade deal is positive for the commodity.  OPEC’s Mohammad Barkindo believes the oil has ‘upside potential’ for 2020, and the remarkets are a bullish factor too.     

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