News

Trade hopes tempered by Trump, stocks slip

CMC Markets

Stocks have handed back some of this weeks’ gains after President Trump threw cold water on the hopes that all tariffs would be rolled back should phase one of the trade deal be agreed upon.

Europe

The US president said he has not agreed to scrapping all the tariffs, and this encouraged some mild selling of stocks. The door was left open to a partial roll back on tariffs, and that’s why the decline in stocks hasn’t been that bad.

The FTSE 100’s relatively large exposure to the commodity sector has hurt the market. Major mining and oil stocks are lower today in the wake of the Chinese trade data. The figures were released overnight, and imports declined by 6.4%, while the consensus estimate was for a decline of 7.8%. Traders shrugged off the fact the reading came in better than expected. It was the sixth month in a row that imports dropped, hence why natural resources stocks are in decline.

Games Workshopshares have soared after the issued a positive update today. The firm predicts that royalties receivable will be significantly ahead of last year’s figure. First-half profit and revenue are tipped to be no less than £55 million and £140 million respectively.  

British Airways parent, IAG, lowered its capacity and earnings forecast for the next three years.  The firm previously predicted EPS growth of 12%, but now it expects it to be above 10%.  The available seat kilometres capacity growth is now expected to be 3.4% for 2019-2023, but the old guidance was 6%. The stock is marginally lower. 

US

Sentiment has cooled a little on Wall Street as Mr Trump tempered expectations regarding removing levies on Chinese imports. Dealers trimmed their equity positions as the Donald downplayed hopes of rolling back on all the tariffs, but he seemed to leave the option of a partial removal on the table, so traders aren’t in full-on cut and run mode.  

The preliminary reading of the Michigan consumer sentiment reading was 95.7. The update didn’t have much of an impact as it was a slight improvement on the previous reading, but it narrowly undershoot forecasts.   

Gap shares are in the red as the company issued a poor update, and the CEO, Art Peck, stepped down. The full-year outlook was lowered amid at ‘challenging quarter’. Trading was disappointing across the board, as the major brands – Gap, Banana Republic as well as Old Navy all posted declines in sales. The company has been struggling for years, and a change of management is needed.

Disney posted solid numbers last night. Fourth-quarter EPS came in at $1.07, which easily topped the 95 cents forecasts. Revenue was $19.1 billion, also exceeding forecast. The good numbers set the scene nicely for the Disney+ streaming service that will start next week. The group has an impressive back catalogue so traders are expecting it to be popular. The stock is higher this afternoon.   

FX

USD/CAD is pushing higher on the back of the latest Canadian jobs report. The unemployment rate held steady at 5.5%, which met forecasts, but the employment change dropped by 1,800, which was nowhere near the 15,900 gain that traders were expecting. It wasn’t a dreadful report but it could set in motion the chatter about a possible rate cut from the Bank of Canada (BoC) – who have kept rates on hold for over one year. The Fed cut rates three this year, so the BoC might want edge towards a looser monetary policy just to keep in tandem with their southern neighbour.    

A broad push higher in the US dollar index has dented EUR/USD. This morning Germany posted positive trade data, but the news failed to lift the single currency. Imports increased by 1.3%, and exports jumped by 1.5% - both topping forecasts. The components of the report show that domestic demand is strong as well as demand for German goods is robust.

Commodities

Gold dropped to a three month low on the back of the firmer US dollar. The strong inverse relationship between the two markets is playing out today. Gold hit a six year high in September but has been broadly pushing lower since then. Should the bearish move continue it might retest the $1,430 area.

Oil has been driven lower by the slight uncertainty about the possibility of a US-China trade deal. The underwhelming import data from China hammed home the point the largest importer of oil in the world is cooling down, and in turn its energy appetite is likely to drop.  

 

 


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