After the sugar rush of Friday’s bumper US non-farm payrolls report it was perhaps inevitable that we’d see a little bit of a come down as we start a new week, and that is precisely what we have seen in what is set to be a big week for central banks, China-US trade, as well as UK politics.
Against this backdrop and a rather mixed Asia session markets here in Europe have opened a little on the softer side.
The latest Chinese trade data showed that exports fell in November, by 1.1%, the fourth month in succession that we’ve seen a decline, as global trade continued to struggle. Imports were more encouraging but when you’ve seen a 6% decline in October, any improvement is a plus, even if its only a 0.3% one.
With the 15 December tariff deadline looming, and President Trump never one to be shy about setting US trade policy by way of Twitter, investors appear to be hedging their bets on the prospect of whether we’ll get an extension as negotiations on the various issues continue.
In what could be one of Dave Lewis’s final acts as Tesco CEO this morning, the UK’s biggest supermarket announced that it would be undertaking a strategic review of its businesses in Thailand and Malaysia with a view to selling them. This seems a rather odd decision given that in its last set of results the company had big plans for the region particularly in Thailand.
Having recently started its Tesco Express proposition in Thailand and noting how successful it had been with customers, the company had been looking to roll it out across the country as well as planning to open 50 new stores in the second half of the year. It also had plans to open 750 new convenience stores in the medium term.
In the Asia region overall total sales grew 8.4%, even though like for like sales declined 1.3%. Operating profit also came in at £111m, on revenues of £2.38bn, and a healthy operating margin of 6.6%. This compares with the Central Europe region which posted a loss of £34m, on £2.9bn and an operating margin of 2.2%.
One of the rationales behind this morning’s decision would appear to be reported interest from potential buyers, however given the scope of its plans for the region one has to question as to why Tesco management would want to sell it. It would be short termism in the extreme and its not as if Tesco needs the cash.
If Tesco were to sell the business, it would need to be at a lumpy premium, and while any proceeds would be a nice cash windfall, one would have to question the long-term strategy of management in adopting such a move, in what could well be a strong business in the years ahead, given how increasingly competitive the UK market is likely to get.
Tullow Oil’s share price has plunged to a record low this morning after the company cut its production guidance for 2020, suspended the dividend, as well as announcing the resignations of CEO Paul McDade, and Exploration Director Angus McCoss with immediate effect.
These changes would appear to suggest that all is not well, and while the problems in Ghana have been well documented in recent months, the sharp cuts to production guidance would suggest that the company underestimated the problems at TEN and Jubilee fields in the country. The company has blamed mechanical issues on two new wells that have limited the well stock available as well as reduced offtake of gas by the Ghana National Gas company. The board has said it will be conducting a full financial review of its operations with an update on progress to be given on 15 January next year.
The tussle for JustEat has continued this morning after Prosus upped its bid to 740p a share as it looks to gazump the deal with Takeaway.com, valuing the business at over £5bn.
After last week’s sharp rise in oil prices on expectation of another Opec+ production cut, oil prices have slipped back after this weekend’s weaker than expected China data. The increase in production cuts while an attempt by Opec producers to bolster prices runs the risk of pushing up prices to the extent, they choke off demand in what is a global economy that, while showing some signs of a recovery still looks fragile.
The pound has continued to edge higher ahead of this week's UK general election vote, hitting a new 30-month high against the euro as markets become ever hopeful that Labour won't be able to close the poll gap and deny the Conservatives a majority.
US markets look set to open lower in what is set to be a big week in the wake of last week’s bumper jobs report. This weeks Fed rate decision is likely to be key in outlining central bank expectations about the prospect of future rate cuts. While President Trump has been more than vocal about the need for further cuts, last week’s jobs report has made the prospect of another rate cut unlikely much before March 2020.
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