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European stocks tread water, ahead of US payrolls

The timing of an announcement with respect to a US, China trade deal continues to remain elusive, as the prospect of a meeting with President Trump and China’s President Xi continues to be pushed back. When pressed on progress in the talks, President Trump said that a deal could take at least another 4 weeks to conclude, but it would be “monumental”.

For someone who isn’t shy of hyperbole, as well as speaking his mind, the US President appears to be becoming a master of procrastination, either that or progress may not be as advanced as US officials may be suggesting, given how often the deadline keeps slipping.

As such Asia markets have had a quiet session with China and Hong Kong markets closed, while the Nikkei 225 closed higher.

In Europe equity markets have opened slightly higher ahead of this afternoon’s US March payrolls report, after a slightly softer session yesterday. In terms of the headline jobs number, the February US payrolls report was as bad as the January one was good.

A gain of 20k new jobs missed expectations by a large amount, when compared to the 311k in January, however it is hard to get an accurate gauge of how the US labour market is doing at a time when the US government shutdown may well have impacted the monthly numbers. What we do know is the unemployment and under employment rates both fell sharply while wages rose by 3.4% the highest in ten years.

This would suggest that the US jobs market is tightening up with fewer workers available to fill available positions. A continuation of this trend in March is likely to prompt expectations that wages could well rise further. This is to be welcomed given how long incomes have been squeezed since the financial crisis. Today’s payrolls number is expected to come in around 177k with wages rising 3.4%.

In company news sports betting group GVC said it performed well in its latest quarterly trading update, with the online business particularly strong. The prognosis wasn’t so positive as far as UK retail which saw no growth in the first quarter, with over the counter business declining 6%. The company said it was too early to assess the impact of the new lower stake restrictions on fixed odds betting terminals which started on the 1st April, though management should have a better idea in a few weeks’ time. As such management said they were confident of delivering on their full year objectives.

Software and IT company Micro Focus has continued its decline from yesterday, after Citigroup downgraded its outlook to “sell” saying that they saw downside risks to revenue forecasts.

It could also be a key weekend for talks between Commerzbank and Deutsche Bank after reported comments from Commerzbank CEO Martin Zielke that a deal would offer much needed scale. This seems rather doubtful given the overlaps between the businesses, and it is more likely that thousands of job losses would follow to make the numbers add up.

It is reported that he went on to say that doing nothing is not on option, which might suggest that rather than creating an absolute monstrosity of a bank that would be too big to fail, the smarter option might be to look towards Italy and a possible Unicredit tie up. The optics of such a deal would certainly be difficult, an Italian bank merging with a German bank to help shore up its position. I’m sure the Italian government wouldn’t make political capital out of that, at all.

The pound has continued to trade cautiously as talk out of Europe suggests the prospect of a long extension, with reports that Prime Minister Theresa May will write to EU Council President Tusk to requestion a delay. As far as talks between the Labour Party and the government are concerned, no news is good news, with reports of whether progress is being made dependant on the news source you happen to be reading.

US markets continued their strong run overnight and look set to build on that again with another positive open later today. Boeing was amongst the strong gainers, inexplicably having a strong session, closing at a three week high, despite the revelation that the MCAS system kept reactivating on the 737 MAX, despite the pilots in the recent Ethiopian crash following Boeing directives in attempting to deal with the malfunctioning of the system.

Boeing CEO Dennis Muilenburg also went on camera to admit there did appear to be problems with the system, after months of suggesting that the problems may well have been caused by pilot error, which is better late than never.

The initial findings of the crash report would appear to suggest that the problems with the system, designed to compensate for the extra weight from the new engines, may be more complex than originally thought. The findings also cast doubt on Boeing, as well as the US’s Federal Aviation Authority’s competency in granting an airworthiness certificate, to the aircraft as well as the delay in grounding the plane.

It is hard to underestimate the damage these incidents have done to Boeing’s reputation as well as the safety if this particular aircraft. With orders already in the billions of US dollars, potentially on hold, and the company still producing 50 aircraft a month they may well find that they have an awful lot of parked aircraft and no buyers.

Passengers are likely to think long and hard before getting on one of these aircraft once, or if, they are declared airworthy again. This caution is likely to be well warranted given the time it took Boeing to even admit it had a problem. Ultimately talk is cheap, while potential litigation and cancelled orders won’t be, something Boeing could well start to find out in the next 12 months.

It’s also Canadian jobs day for March and, unlike the US, the Canada February number was a strong one, coming in at 55.9k, with most of the new positions full time ones. March is unlikely to be anywhere near as good with expectations of 6k new jobs.

Wages are expected to remain at 2.2% after a big jump from 1.8% in the January numbers, to 2.2% in February.

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