No yellow jersey for Peloton as FTSE hits an 8 week high


It’s been a positive end to the week for markets in Europe with the FTSE100 leading the way closing at its highest levels since early August, despite a high profile company collapse, (Thomas Cook) and three profit warnings, from IAG, Pearson and Imperial Brands.

Today’s gains have been helped to some extent by a decent rebound across all sectors, with the best gains coming from house builder Persimmon after being on the receiving of an upgrade to buy from broker Jefferies, with the broker expressing confidence that the company can maintain its margins.

In company news, Pennon Group, owner of Viridor and South West Water said it was on track to meet its full year guidance for the year 2019/20, and said it would be conducting a review of its entire business, in terms of future strategy and growth options. This could be the first step in what might be a consideration in spinning off its waste business Viridor into a business all by itself. This would make sense given that growth in this area, particularly around recycling is only likely to increase, while risks around its other business unit, South West Water, is likely to be overshadowed by risks of nationalisation.

The woes for Commerzbank have continued, after the bank downgraded its revenue outlook for 2019. The shares have edged higher given the bank did warn back in August that improvements to its bottom line would become more difficult if the ECB eased further at its September meeting. While the ECB did ease policy further, rates have edged higher since that meeting, however the German economy has shown little sign of improvement at all, with the latest PMI data showing further deterioration in the economic outlook.

As a result the bank has said that they are no longer anticipating an improvement in the revenue outlook for 2019. The bank last week also said that they intended to sell their majority stake in its Polish subsidiary MBank. This seems a rather strange decision given that there is much more growth potential in Poland than there is in Germany which is overbanked and barely profitable. Far better to keep the stake in MBank and close more branches. It is difficult to understand the rationale behind that decision, it may raise money in the short term but does nothing to secure long term profit potential.

Imperial Brands has continued its declines after this week’s profits warning, as investor nervousness increases over the prospect a slowdown in revenues as the concerns about the health problems from vaping turn into a flood. The tobacco industry is now looking at the prospect of an existential crisis, hemmed in from both sides, a crackdown on normal cigarettes already cutting into its profits, e-cigarettes were supposed to be the next key growth area. This strategy now appears to be under threat with the prospect that the US could ban e-cigarettes completely until more is known about these respiratory related deaths.


US markets opened modestly higher today helped by the more positive tone in Europe, and the prospect that any impeachment concerns may well take some time to shake out, however there has been little in the way of upside traction, and US stocks appear to be treading water. The more immediate focus appears to be on the prospect of the restart of US, China trade talks in Washington on October 10th.

Peloton shares picked up where they left off yesterday, pushing lower again as increasingly sceptical investors look at the financials of the business and conclude, not unreasonably that the valuation is a little on the optimistic side. The IPO market has come a long way from the early optimism at the beginning of the year, and to some extent this is a good thing. It appears that investors are becoming more discerning about the valuations of these new companies. It shouldn’t be the exception that a unicorn is profitable as has been the case for most of this year. Investors need to send a message that IPO’s need to be more than a quick win for management and their bankers and there needs to be some hope of the company becoming profitable.

Bankers now appear to be getting a welcome reminder that investors don’t like being taken for mugs. This helps explain why we’ve seen the WeWork IPO hit the buffers, and also explains why Endeavour pulled their IPO in response to yesterday’s flop.  

Micron Technology shares opened sharply lower after posting some mixed Q4 numbers, with the company warning on its outlook for Q1. It downgraded profit expectations to $0.46c a share, down from $0.49c a share. The company cited concerns about the trade outlook over the course of the rest of the year.

On the data front the US consumer appears to be showing little sign of economic angst after personal income and personal spending both rose in August, though personal spending was slightly weaker than expected, rising 0.1%, while the savings rate also rose, as consumers reined back spending plans. Personal income rose by 0.4%, while durable goods for August improved by 0.5%, above expectations of a 0.2% rise.

In a sign that inflation remains subdued the Fed’s preferred measure of inflation came in unchanged at 1.8%.   


The pound slipped back to two week lows against the US dollar today on comments from Bank of England MPC member Michael Saunders who said that rate cuts might be needed even if the UK were to get a Brexit deal. This is significant as Saunders has traditionally been a hawkish voice on the monetary policy committee. As recently as June he was saying that rates might have to rise sooner rather than later, so this is a bit of a shift. It is true that recent economic data has been disappointing, but in terms of wages, inflation and unemployment, these are all better than when he was calling for rate hikes in 2017. If low rates were the answer then surely Europe would be doing much better than it is, however it is actually doing worse.

While Saunders did cite low levels of business investment, it is hard to explain what good a 25bp rate cut would do when all UK gilt yields are already lower than the current base rate. It could even be argued that low rates are part of the problem in that they have started to encourage people to save more as they know that future capital returns are likely to be much lower than in previous years, because of the low rate environment.  I wonder how long it will take for central bankers to break out of their group think mentality and think more creatively.

The Australian dollar is amongst the better performers today, helped by a more positive risk outlook, and some short covering ahead of next week’s interest rate decision by the RBA. 


Gold prices have slipped back below $1,500, close to the lows of the last three months down near $1,480, as the US dollar continues to remain fairly well supported. Platinum prices have also plunged on course for their worst week in two months.

Crude oil prices have slipped back on reports that Saudi Arabia has agreed a partial cease fire in Yemen, posting their lowest levels since the attacks on the Saudi’s Aramco infrastructure earlier this month.  There was some chatter that the US had agreed to remove sanctions from Iran oil exports in return for the restart of talks however President Trump tweeted a swift rebuttal to those reports.

Despite this rebuttal, oil prices seem a lot softer now in the context of concern about a lack of demand and lower geopolitical risk, and could be at risk of further losses over the course of the next few days and weeks.

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