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Europe opens lower as banks and miners drag

It’s been a weak start for European markets in the wake of yesterday’s IMF downgrade of its expectations for global growth this year in its latest update on the health of the global economy. This shouldn’t have been a surprise to most investors given the weakness of recent economic data, particularly in Europe. The IMF reserved its steepest cuts for Europe, cutting Germany to 1.3% from 1.9%.

Mining stocks are leading the decliners after BHP released its operational review for the half year which showed that production guidance over the next six month would be unchanged for iron ore, petroleum, and coal. The company reported that lower iron ore shipments cost the business $600m after the freight train derailment and various incidents that curtailed operations in Chile and Australia.

In the latest sign that European banks continue to struggle with the negative rate environment as well as rising political uncertainty, Swiss bank UBS announced that while it saw Q4 net profits improve to $4.9bn in its latest Q4 numbers showed an outflow in client funds of $8bn from its wealth management division, as clients moved into the relative safety of cash. CEO Sergio Ermotti struck a cautious tone on the outlook for Q1 with client activity likely to remain affected by ongoing concerns about geopolitics and trade.

Budget airline Easyjet reported a decent first quarter, in line with expectations, with revenue up 13.7% to £1.3bn. passenger numbers rose by 15% which was helped by an additional 18% in capacity. Total revenue per seat declined by 4%, as a result of cancelled flights and lost revenue due to the pre-Christmas drone issues at Gatwick airport. The company estimated that the Gatwick drone issues cost the business £10m. Despite the uncertainties around Brexit the company said that forward bookings and demand was robust for the period beyond 29th March and said it expected to grow capacity by 10% in 2019, with 15% growth expected in the first half of the year.

With all the focus on the retail sectors woes this morning’s Christmas trading statement from Dixons Carphone makes for sobering reading, though there are some bright spots. Group like for like revenues saw a rise of 1%, however UK like for like mobile sales saw a decline of 7%, and a 12% decline in revenue, as consumers held back from upgrading their mobile phones, bad news for the likes of Apple and Samsung. The electrical side of the business was much more positive and saw a rise of 2%, with gaming being the stand out performer. The international business was much more positive with like for like sales up 5%. On Brexit the company said it had set aside £30-40m of extra stock as part of its preparations.

Royal Dutch Shell shares are also lower after being downgraded by US investment bank Morgan Stanley to underweight with a price target of 2,180p, with the bank blaming falling capex, which in the long term could well impact future revenue potential.

The pound is slightly weaker ahead of this morning’s wages and unemployment data for November, with wage growth set to remain at a 10 year high of 3.3%, and unemployment set to remain steady at 4.1%. Reports that the Labour Party may be starting to falling into line with calls for a second referendum don’t appear to be offering any support to the currency. This may be down to the fact that if it succeeded it would merely prolong the ongoing uncertainty even further into the future, as well as call into question the already precarious nature of the incumbent government.

This weak tone is likely to translate into a weaker US open when US markets return from their long weekend, as US investors turn their attention to a raft of further earnings announcements.

Oilfield services provider Halliburton is expected to announce its latest Q4 numbers in the wake of a poor quarter which saw oil prices drop sharply. Profits are expected to come in at $0.37c a share.

Also due is Johnson and Johnson’s Q4 numbers which are expected to come in at $1.95c a share.

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