The FTSE 100 has underperformed, while US-China trade tensions have eased slightly. 

European market update

The Chinese Ministry of Commerce said the trade spat with the US will need to be worked out with additional talks. In the era of heightened trade tensions, any language that isn’t hostile, and advocates further dialogue, is seen as a step forward. The situation is far from diffused, but the absence of aggression has promoted traders to snap up stocks. The FTSE 100 is lagging behind its continental counterparts as big oil stocks are holding back the London index.

The FTSE MIB is holding up well even though the coalition government in Rome is looking a little shaky. There has been chatter of a possible collapse in administration, but it was reported that the two coalition heads, Matteo Salvini and Luigi Di Maio, had a long and cordial telephone conversation, so that should take the heat off Italian government bonds in the near term.  

AO World confirmed it made an annual loss of £400 million, in line with the group’s forecast. Last year’s loss was £3.4 million. Annual revenue jumped by 13.3%. The company cited reorganising costs as the reason for the loss. UK revenue and continental European revenue grew by 10.1% and 32.2% respectively. The sales levels were impressive given the fragile state of consumer confidence, and other retailers would love to have double digit increases in revenue. John Roberts, the founder of the firm, returned as CEO earlier this year, and he is happy with how the various divisions are operating together. It was a solid update from AO World, but given the subdued performance of the share price in recent months, investors are clearly cautious about the firm.

Royal Dutch Shell is known for generous shareholder returns, and today the oil titan has kept up that tradition, and it plans to return $125 billion to investors in the form of share buybacks and dividends. The firm expects new projects to be very profitable, and that is how they expect to fund the major returns. Ordinarily, you would expect the stock to rally on the back of such an announcement, but the share price is in the red as the underlying oil market is under pressure over concerns about demand.  

888 issued a positive trading update. Like-for-like revenue from the start of the year until mid-May saw a 6% increase. The poker division was an underperformer as it registered a 28% fall in revenue, while the sports and casino units saw revenue jump by 29% and 13% respectively. Itai Pazner, the CEO, was ‘encouraged’ by the jump in first-time depositors.

US market update

The major indices are firmly higher this afternoon as the worries about trade tensions have cooled a little, and the update from Jerome Powell, the head of the Federal Reserve encouraged investors too. The fact that trading relationship between the US and China hasn’t gotten any worse in the past day has lifted investor confidence a little. Mr Powell said he will ‘act as appropriate’ to sustain economic growth, and dealers viewed that as a sign that we would consider cutting rates should he feel it was required. 

Tiffany shares are a little higher today despite the broadly underwhelming update. Quarterly like-for-like sales – excluding currency fluctuations, dropped by 2%, and the consensus estimate was a decline of 1.16%. The company said that tourist related sales dropped by 25%, and that could be sign that the Chinese middle classes are feeling the pain of the cooling economy. Tiffany trimmed its full-year outlook and that was the take away message for traders .The group expects EPS growth of low-to-middle single digits, while the previous forecast was for mid-to-high single digit growth.

Land’s End shares are higher today after the group’s figures were well received. The quarterly loss per share was 21 cents, which was far smaller than the 31 cent loss that traders were expecting. Land’s End group confirmed that US stores operated by the company saw sales jump by 12% on a same store basis.

FX update

EUR/USD is flat on the day even though eurozone CPI slipped back to 1.2% from 1.7% in April, and the core reading dropped to 0.8% from 1.3%. The reports underline the drop in demand, and the core reading is concerning as it is a better indicator of underlying demand. On the bright side, eurozone unemployment dropped from 7.7% to 7.6% - it lowest rate in over 10 years. The European Central Bank (ECB) will hold a meeting on Thursday, and traders are expecting further details about the new targeted liquidity programme that is planned for September. Falling CPI would prompt Mario Draghi, the head of the ECB to talk down the currency.

GBP/USD is a little firmer despite the poor UK construction PMI report. The reading slipped from 50.5 in April to 48.6 in May, and it was the weakest reading since March 2018. A reading below 50.0 indicates negative growth, and it is clear the UK construction sector is contracting, and keep in mind the UK manufacturing PMI update yesterday also showed negative growth.

President Trump talked about signing a ‘phenomenal’ trade deal with the UK once Brexit is taken care of, but in relativity lawmakers in both countries would need to back such an agreement, and given that Mrs May is set to step down at the end of the week, the political landscape in Britain is likely to look very different in the near-term.

Commodities update

Gold has cooled a little three solid days of gains. Recent trade tensions and the softer greenback has propped up the metal, and while it holds above the $1,300 mark, it is likely to push higher, and it might retest the $1,340 region.

Silver has had a similar move to gold, whereby it is in the red a few days of gains. Silver’s decline from February has been more severe, and while it holds below the $15.11 mark, the bearish trend is likely to remain intact.

Oil is a little subdued as worries about future demand levels persist. The sharp decline in the energy market in recent weeks has rattled some traders and dealers are likely to remain cautious until trade tensions melt away.

 

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