News

FTSE aided by miners plus softer pound

The largely positive data from China combined with the dip in the pound pushed the FTSE 100 to a level last seen in July.

Europe

In the final-quarter of 2019 the Chinese economy grew by 6%, meeting forecasts. The growth for the year was 6.1%, which was at the lower end of Beijing’s guidance. The annual growth rate was the lowest in 29 years, but then again it is no secret that China’s economy is slowing down. The fixed asset investment, industrial output plus retail sales reports from China all topped forecasts. In recent months the Chinese authorises have been introducing measures to spur-on economic activity, such as loosening lending restrictions, and the tactics appear to be working. Mining stocks like Rio Tinto, BHP Billiton plus Glencore are being helped by the China numbers. While internationally focused firms like GlaxoSmithKline, Diageo and AstraZeneca are benefitting from the slide in the pound – overseas revenues are given a lift.       

Casino, the French group, issued a disappointing update after the close of business yesterday, hence why the stock sold-off today. The French operation accounts for over 50% of total revenue, so the unrest in the county has caused the firm to lower its earnings forecast. Excluding the real estate activities, the business in France is now expected to post a 5% increase in profit, which is a big difference from the 10% that was originally projected.  The group is committed to close down underperforming stores, but that might not be enough to keep the bears at bay.

Ashtead shares received a nice boost from Morgan Stanley, who raised their outlook to ‘overweight’ from ‘equalweight’. The Wall Street firm upped their price target to 3,000p from 2,420p. Ashtead have enjoyed a positive run recently on account of the strong US housing sector – the firm generates the majority of their revenue in the US. The upgrade from Morgan Stanley helped the stock hit a record-high today.

Hastings’s shares took a knock after the company cautioned that fourth-quarter claims were ‘elevated’. Due to the higher claims, the group warned the total dividend for 2019 would fall short of the 2018 level –that did the damage as far as the share price is concerned. The insurer ‘applied price increases ahead of the market’, which led to customer policies being broadly flat in the latter half.

US

The upbeat sentiment is still doing the rounds on Wall Street as the Dow Jones and the S&P are showing gains. Things have been quieter on the corporate stories front today, but there some mixed economic updates. Housing starts surged by 16.9% last month, while building permits dropped by 3.9%. Industrial production dipped by 0.3%, but it keep in mind the November reading showed 0.8% growth. The University of Michigan preliminary consumer sentiment reading was 99.1, a fractional drop from the previous reading of 99.3. Last month, there were 6.8 million job openings, which was a big drop from the 7.36 million November, but then again the jobless rate is at a fifty year low so the US might be close to full employment.          

Schlumberger shares are in demand today on the back of fourth-quarter update. EPS came in at 39 cents, topping the 37 cents forecast. The update today was similar to the third-quarter report in October where by the international business outperformed, and helped pick up the slack at the US operation. The company earns roughly 70% of its revenue from the international operation, so it is encouraging to see the division registered an 8% increase in revenue in the final quarter. The company cautioned the OPEC+ decision to curtail production could hurt business.     

FX

GBP/USD is in the red on the back of the poor December retail sales report. The update showed that retail sales fell by 0.6%, which was a major miss on the 0.5% increase that economists were expecting. To make matters worse, the November reading was revised down to -0.6% from -0.8%. The weak consumer activity at the back end of last year was probably down to the UK election uncertainty. The speculation about an interest rate cut from the Bank of England has increased as traders are now factoring in roughly a 70% chance of an interest rate cut later this month.

EUR/USD has been hit by the broadly firmer US dollar. Eurozone CPI held steady at 1.3%, which was in line with the flash reading. The core reading was 1.3% and that also was unchanged from the flash update. The European Central Bank are aiming to drive up inflation to close to 2%, so the metric has a long way to go.                   

Commodities

Gold has managed to press higher despite the rally in stocks and the US dollar. Typically, the metal would be held back by a move higher in the US dollar as it is quoted in dollars, and the risk-on sentiment would usually bring about weakness in the commodity. Today’s move higher isn’t huge but the circumstances make it impressive.

WTI and Brent crude are relatively subdued today when you consider the impact of the China data on stocks. The industrial production reading plus the fixed asset investment report from China should assist oil demand in the months ahead, but the energy has given up a lot of the gains in made earlier in the session. This could suggest that that traders aren’t overly optimistic about the commodity.

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