UK markets have managed to hold off further significant declines this morning after yesterday's fallout, with sterling dropping back following some profit-taking. UK prime minister Theresa May's speech yesterday seems to have caused some short-term volatility rather than a trend change, as investors come to realise there is still a long road ahead.

More encouraging for Mrs May and team Brexit however is this morning’s large decline in unemployment claimants, estimated to come in at +5k but actually falling by 10.1k. In theory, with less people claiming unemployment benefits there should be a decrease to government spending, and an increase to money being spent on the high street. The figure does however need to be taken with a pinch of salt given the reduction could well be from seasonal work (it was Christmas last month after all) or zero hours contracts, which does little to improve the long term stability of the economy, as nice as it sounds on paper.

Publishing giant Pearson saw 23% wiped off their share price after it cut profit guidance by £180m for 2017 in its continued battle to bring costs down. The British publisher derives nearly 63% of all sales from the American education market, and the rise of the dollar has still not managed to cover up falling sales as the industry moves towards digital publishing. So significant is this news to investors, coupled with the dividend cut, that the group is trading back at its 2009 levels of below 600p with the fall being its biggest one day move in over a decade.

This makes its plans to sell-off its stake in the world’s biggest book publisher Penguin Random House, whose titles include Game of Thrones and the Harry Potter series, and focus more exclusively on the struggling education market all the more perplexing.

The management belief that selling off the best parts of your business to focus on the weakest part does seem to be a strange decision given the large scale changes being seen in the education market. The company will need more than a sprinkling of Harry Potter magic if it hopes to turn the business around by selling off the best bits, while not embracing the digital revolution more wholeheartedly.

This is where the business needs an overhaul, and is currently where the business is being found wanting. 

On the other side, British American Tobacco is up over 2% this morning following yesterday’s news of the takeover deal of US rival Reynolds. The merger would mean that BAT would become the world’s biggest listed tobacco firm, and with cost-savings being estimated at $400m the bottom line is set to look healthier even with the $49.4bn price tag which represents a 26% premium on Reynolds shares. This is welcome news for the tobacco giant, as it faces continued headwinds that the changes to packaging have pushed on sales.

It’s another big day for US Equities as Q4 earnings season continues. Pre-market we have Q4 figures from financials such as Charles Schwab, Goldman Sachs and CitiGroup, and after the closing bell we will hear from Netflix on their results. For all four of these companies, EPS are expected to rise although the share price for them all fell yesterday on the Trump uncertainty fears.


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