News

US-China trade talk circulates, Ted Baker in tatters

Equity benchmarks are in the red, but they are off the lows of the session as traders are a little less fearful about the prospect of the US imposing more tariffs on Chinese goods.

Europe

Earlier in the session, stocks were nursing large losses on the back of a report the US are waiting for Beijing to make the first move. More recently, there has been talk the Trump administration will not press ahead with levies, provided that China commits to making agricultural purchases, which is why stocks are off the lows of the session. The fact there is chatter about agricultural purchases, shows that both sides are keen to negotiate.          

Ted Baker shares slumped to a 16 year low today on the back of the group’s dreadful update. Lindsay Page, who took over as CEO earlier this year, stepped down, the dividend was halted, and the guidance was lowered too. The company cited a jump in promotional activity for the worse than expected performance in terms of margins. Only last week the share price took a knock when the fashion house said it overstated its inventory by £20-£25 million. A series of profit warnings has hammed the share price – it is down more than 70% year-to-date. Rachel Osborne, the new CEO, will have a tough task ahead as the firm’s reputation has taken a beating this year, and the retailer isn’t too optimistic about going into the Christmas period.

Ashtead revealed solid second-quarter figures, but the group cautioned about the health of the UK market, hence why the stock is in the red. Statutory profit before tax in the three month period increased by 3%. The first-half rental revenue increased by 13%. The company is London-listed but earns the bulk of its revenue in the US, and now it is trying to refocus the company towards the British market. Ashtead also expressed concerns about currency headwinds. Only last month the stock hit a record-high so a pullback isn’t a huge surprise.

JD Wetherspoon’s has gone from strength to strength in terms of share price. In September, the stock hit a record-high, and it’s not too far away from that level at the moment. Today, the pub group announced plans to spend £200 million for the expansion of its business in the UK plus Ireland. The pub trade has been competitive in recent years as higher wages, higher business rates and changes in drinking habits has hurt the industry. JD Wetherspoon has hit the sweet spot with a wide range of food and drinks at competitive prices, which is why the group has outperformed.

US

After starting off on a negative note, the Dow Jones is now in positive territory. The news that Washington DC and Beijing are haggling about farming produce has given traders some hope the US won’t slap on new tariffs on Chinese imports at the weekend. The mood on Wall Street is one of cautious optimism. On the political front, it was a victory for President Trump as the Democrats backed the USMCA trade deal, and that helped sentiment too.     

Toll Brothers posted well received fourth-quarter results. EPS cooled to $1.41, while equity analysts were expecting $1.30. Revenue for the three month period slipped by 3.1% to $2.38 billion, and the consensus estimate was $2.20 billion. The group’s outlook toped forecasts too as the firm expects first-quarter house sales to be between 1,650 and 1,850 which comfortably exceeded the 1,595 forecast. The Fed cut interest rates three time since June, and we are set to see the full-effect of loosened monetary policy, so the lower mortgage rates should help the company.   

Autozone shares are higher this afternoon on the back of the solid quarterly numbers. EPS was $14.30, and dealers were expecting $13.74. Total sales were $2.8 billion, which narrowly toped expectations. Same-store-sales is a closely watched metric, and growth was 3.4%, while the consensus estimate was 2.5%. The stock has been pushing higher since early October, and should the bullish trend continue, it could target $13.00.              

FX

GBP/USD is higher as traders are factoring in a victory for the Conservative party. Should the pro-business Tory party get a majority it should pave the way for a smooth Brexit, and dealers are mindful of that too. In the three months until October, it was estimated the UK economy grew by 0.0%, meeting economists’ forecasts. Keep in mind, the economy grew by 0.3% in the previous three months.

EUR/USD is higher on the session thanks to the dip in the greenback. The German ZEW current conditions reading edged up to -19.9 from -24.7, while the ZEW economic sentiment reading was 10.7, comfortably topping the 0.0% forecast.      

Commodities

Gold has been lifted by a mixture risk-off sentiment as well as the dip in the greenback – both tend to help the commodity. Trade uncertainty is souring sentiment in the European equity markets, hence why dealers are seeking out assets like gold. Sunday will be the decider day for the latest round of tariffs being imposed on Chinese imports so traders are likely to remain twitchy between now and then. The slide in the US dollar has helped gold too.

The oil market has been muted today as the US-China trade story continues to dominate the headlines. There is continued chatter the next round of the US tariffs on Chinese imports will be delayed, but nothing is a done deal, and that is why WTI plus Brent crude haven’t moved much today.        

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