European stock markets are suffering today as the US-China trade tensions have increased. 

Europe

There are no planned meetings between both sides, and that is sending out a very negative message. The 90 day delay in relation to the Huawei ban helped stocks at the start of the week, but that now feels like a long time ago. It appears that all the progress that was made throughout 2019 has gone up in smoke in a few weeks. Adding to the selling pressure was the dreadful manufacturing numbers from Germany. If the powerhouse of Europe is suffering, that is likely to ripple out across the region.

Merlin Entertainment shares have rallied today after ValueAct, an US activist investor urged the company should be taken private, and they feel the group could be worth up to £4 billion. Merlin shares are trading in the region of 355p, but ValueAct feel they might be worth 450p. The US investment firm hold a 9.3% stake in Merlin, and they support the management’s decision to make long-term investments in the organisation. The travel sector has taken a hit recently as some Brits have refrained from taking overseas holidays, so domestic firms like Merlin might stand to benefit from the jump in staycations.

QinetiQ confirmed that yearly orders jumped by 32% to £3.1 billion – a record level. Revenue increased by 9%, and it was the third consecutive year of growth, and that was helped by competitiveness and consumer focus. The full-year dividend was upped by 5%. JPMorgan, upped their price target to 300p, from 270p. The stock has rallied today, and while it holds above the 50-day moving average at 300p, the bullish move is likely to continue.

Barclays cut their price target for Royal Mail to 250p from 410p, and the announcement comes one day after the delivery service posted poor figures. Confidence was rocked in Royal Mail in November when the company issued a profit warning, and at the start of this year the firm confirmed that revenue from letter delivery dropped. Yesterday, the embattled company revealed plans to slash the dividend by 40% in order to fund the turnaround plan, and now investors have fewer reasons to hold the stock, and that is why it hit a fresh all-time low.

Deutsche Bank’s share price has fallen to a record-low as the company hold its AGM today. The bank’s troubles have been known for some time now, and there has been on-and-off chatter about it being taking over, but nothing has come of that proposal. Creaking under the weight of its own struggling balance sheet, the bank CEO, Christian Sewing, called for ‘tough cuts’ to be made in order slim down its size, and remove it from the spotlight.

US

Trade tensions continue to drag on US equities, and seeing as the US and China have no plans to meet, traders are dumping stocks. Mike Pompeo, US secretary of state, said that China poses a real risk to the US in terms of national security, and dealers are taking that as a sign the trade spat will probably get worse before it gets better.

The US manufacturing PMI report dipped to 50.6, from 52.6 in April, and the consensus was 52.5, while the service PMI reading was 50.9, and economists were anticipating 53.2. These reports suggest the US economy is cooling a little, and the timing of the updates isn’t great on account of the fear over the trade spat with China.

Best Buy had a strong first-quarter as non-GAAP EPS jumped by 24.4% to $1.02, which easily topped the $0.87 forecast. Revenue for the three month period was broadly unchanged at $9.14 billion, and that was largely in line with equity analysts’ forecasts. Same-store-sales increased by 1.1%, and the consensus estimate was for growth of 1%, and adding to the positive numbers, the group reiterated its full-year outlook. 

Medtronic announced that fourth-quarter EPS were $1.54 while equity analysts were expecting $1.46. Revenue for the period was $2.26 billion, and that narrowly exceeded the $2.23 billion estimate. The group announced a forecast that was well-received too, as it expects full-year EPS to be between $5.44 and $5.50, and while the equity analysts were anticipating $5.44. 

FX

The US dollar index has hit a two-year high as the greenback is looing relatively stable compared with the euro and the pound, due to the political and economic uncertainty in Europe.

EUR/USD has sold-off in the wake of the mixed PMI reports from France and Germany. The French manufacturing and services PMI reports came in at 50.6 and 51.7 respectively, and both show marginal levels of growth. The German manufacturing PMI report slipped again to 44.3 – its lowest level in over six years, and that has weighed on the euro.

UK political uncertainty and questions over how long will Theresa May last in Downing Street has put pressure on GBP/USD. Mrs May’s government was dented as Andrea Leadsom quit the cabinet, and that has made matters even worse for the Prime Minister.

Commodities

The flight to quality drive has overpowered the inverse relationship gold has with the US dollar, and the metal has managed to edge higher even though the greenback has hit a two year high. The commodity is still in its wider downward trend, and while it remains below $1,300, the outlook should remain bearish.

Oil has endured a severe sell-off as traders are worried about demand levels given trade tensions, and the disappointing manufacturing PMI reports from Germany and the US has played a role too. Dealers are also mindful of the surge in US oil stockpiles that was announced yesterday by the Energy Information Administration. Brent crude has fallen to a level not seen since early April, while WTI has dropped to a level last seen in late March     

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