With US stocks at their lowest levels in 14 months and Asia stocks also sliding sharply, it seems that for all the hopes of a Santa rally investors appear to have more of a case of the Christmas Grinch, as concerns about weaker global economic growth and the prospect of more US rate rises sent more market participants to the sidelines.
Further raising investor anxiety was another broadside from President Trump directed at the Federal Reserve ahead of tomorrow’s central bank rate decision, where it is widely expected we could well see the fourth rise in the Fed funds rate this year.
This appears to be less of the done deal than it was a few weeks ago, however if the Fed were to hold off at this late stage, most in the market would quite reasonably ask what has changed in the short time since October when there was near unanimity that we would be seeing a rise tomorrow.
It is also apparent from President Trump’s criticism of the Fed that he is looking to pass off blame for the current stock market sell-off as well as blame someone else for any economic slowdown that is sure to come next year.
The pound has broadly shrugged off the Labour Party’s attempt to call a vote of “no confidence” in Prime Minister May’s leadership, largely because the mechanism used doesn’t imply a vote of “no confidence” in the government. The meaningful vote has been confirmed to take place in the week of 14 January 2019.
Markets in Europe have continued their slides from yesterday in the wake of the sell-offs in the US and Asia, with investors gaining little succour from China’s key economic conference which marks the 40th anniversary of its economic reforms, where President Xi stated that his country would stay the course saying that no-one would dictate to the Chinese people how they push ahead with the current pathway of economic reforms.
While investors were disappointed that the Chinese leader didn’t show more ambition in respect to his comments, this was never really likely given that his remarks were always likely to be directed at a much more domestic audience, thus limiting the Chinese President’s room for manoeuvre.
In company news today Royal Dutch Shell is reported to be mulling a bid for Texas based Endeavor Energy for about $8bn, half the price that was being touted earlier this year. While Endeavor has oil drilling rights over a wide area of the Permian basin it is not immediately clear why Shell feel that a move back into oil after paying all that money for BG Group can in any way be considered an efficient and diverse use of funds.
Oil field services provider Petrofac has had a poor run of late, the shares down over 30% since October, largely tracking the sharp drop in oil prices, however its latest trading statement said that it was trading in line with expectations with healthy new order intake in its core markets. New orders of $3.8bn so far year to date, while they have said they are bidding on more than $15bn of tenders scheduled for the first half of 2019. The current order backlog stood at $10.2bn as at 30 November.
Another oilfield services provider, Wood Group, announced a new 10-year contract this morning worth $66m to supply Sellafield with new digital control technologies.
Oil stocks are also falling again today as oil prices continue their recent declines with US oil prices at their lowest levels in over a year pushing smaller caps like Premier Oil, Tullow Oil and other energy providers at the bottom of the FTSE350.
National Grid shares have also come under pressure after Ofgem cuts returns for transmission providers for power network businesses.
For all the concerns about a slowdown in the US economy there appears to be little sign of it so far with most consumer spending data looking fairly solid.
A decent bellwether of this is likely to be the latest numbers from FedEx which is due to report Q2 numbers later today. The on line shopping boom may be causing problems for shopping malls and the traditional retail brands but for the likes of the companies that deliver parcels it’s been an absolute boon. At Fedex’s last end of year update it posted full year numbers that showed an acceleration in both revenues and profits growth, in excess of expectations. The company also raised its guidance for the upcoming year saying it expected revenues to rise 9%, despite continued integration costs from the acquisition of TNT Express two years ago.
The shares have slid sharply since September in the wake of the company’s June update and despite attempts at rebounding have continued to struggle, over concerns that higher wage costs could impact margins, which hit their Q1 numbers. Today’s Q2 numbers should show whether the company remains on track to meet its outlook for the current fiscal year. It would be surprising if we didn’t see a positive outlook given how strong recent US consumer data has been, however any indication of weakness in the numbers could well see the shares decline further, even though we have already declined over 25% from their September peaks.
US markets look set for a modest rebound after last night’s sharp sell-off, with the main focus set to be on tomorrow's Fed decision as the meeting gets underway later today.
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