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US, China trade cross winds keep markets on edge

The ebb and flow of sentiment around US, China trade continues to pull global stock markets from pillar to post, with trade talks between the two set to get under way again today in Washington DC.

Asia markets have seen a positive session on the back of optimism that the current situation won’t get any worse, and that a tariff delay next week could be a likely possible outcome. This seems a big ask given this week’s escalations by the US, nonetheless the reports that President Trump may announce that US businesses can now do business with China’s Huawei for  certain products that aren’t security sensitive has generated a sense of optimism.

The Asia session doesn’t tell us the whole story given that we’ve seen some significant swings between negative and positive territory, on news chatter that the talks had either stalled, or may well get cut short on the negative side of the ledger, as well as reports that next week’s tariffs may get delayed on the other side.

European markets initially opened higher, however the positive tone has started to disappear over concern that there is unlikely to be any indication that these talks will show any significant sign of progress, or that next week’s tariffs won’t kick in as scheduled.

In a sign that the headlines around global trade and Brexit uncertainty is starting to affect its business and capital flows Hargreaves Lansdown reported that the amount of new business in its latest quarter showed some impact from the uncertainty economic environment. Nonetheless assets under management still rose to £101.8bn, a rise of 3% since the previous quarter.

Net revenue also rose 6% to £128.1m helped by a rise in new clients of 35k, however the company did warn that weak investor sentiment and political uncertainty surrounding Brexit had affected the business during the period, and may continue to do so. While there may be some truth in that it would be surprising if the negative publicity around the problems at its Woodford fund may well have had an impact as well.   

Over the last few months the UK retail sector has been at the forefront of negative stories as well as job losses. Despite this, there are still positives and Dunelm Group is one of those, having seen its share price rise steadily this year. In the first quarter of this year like for like sales rose by 6.4%, slightly below the 7.7% of the previous quarter but still a decent start to the year. The company did report that September trading was a little mixed, but nonetheless management kept its full year guidance unchanged.

On-line showed particularly strong growth, rising 34.7% to £35.7m, with management confident that the new digital platform will enhance this area further. This area still remains a fairly small part of the overall business as group revenues rose to £262.m, rise of 5 8%, so the scope for significant improvement is high.

There had been some concern since the company’s last update that perhaps a lot of the good news may well be priced in given that the share price has drifted off its summer highs, and it would appear that Morgan Stanley shares those concerns, warning that the outlook for growth is set to slow further, sending the shares lower on the open.

These numbers do go some way to reinforcing that given the uncertain outlook for the retail sector and the challenging retail environment, however they ignore the fact that the on-line business could well offset some of this slowdown. 

In welcome news for the construction sector Galliford Try announced a new contract of £340m, over the next five years with Southern Water, and Yorkshire Water to help upgrade certain parts of its infrastructure. Earlier this year Galliford Try announced a £40m profits warning as a result of a restructuring of its business due to the overrun of a number of key projects which saw the shares fall sharply to a seven year low. Today’s news could well help go some way to continuing the rebound we’ve seen in the share price since those April lows.

On line property site OnTheMarket has seen its losses widen to £7.1m as the slowdown in the UK housing market continues to hinder its progress. Revenues were encouraging, rising 14% to £8m as more estate agents signed up to its new contracts

The latest German trade numbers showed that a key part of its economy continued to struggle as exports fell sharply in August, by 1.8% in further signs that the global economy is slowing. To compound concerns about Europe’s economy the latest French industrial production data for August also sank sharply, declining 0.9%, while manufacturing slid 0.8%, some really ugly numbers.

This is an unwelcome reminder to Europe’s policymakers, if any were needed that while ECB monetary policy is very loose, in the absence of fiscal reform the cracks in Europe’s economy are getting wider.

Reports this morning that ECB President Mario Draghi ignored in house advice that he should not restart the bond buying program merely serve to highlight the growing divisions at the heart of the governing council and while Bank of Finland governor Ollie Rehn sought to play down the story of splits in the governing council today’s publication of the ECB minutes may tell a different story. It should also be noted that Mr Rehn is a dove, and sympathetic to Mario Draghi’s position, so in the words of Mandy Rice-Davies, he would say that wouldn’t he?

On the Brexit front UK Prime Minister Boris Johnson is due to meet Irish Prime Minister Leo Varadkar in an attempt to bridge the gap between the Irish position on Northern Ireland and the UK governments position when it comes to the customs union. It is becoming increasingly apparent that there won’t be a deal given how far apart the two sides are, and even if there were trying to get any deal through the House of Commons would be an utter waste of time and effort. There is still no clear idea of what MPs would accept in terms of an outline of a deal, with most MPs choosing to be tribal rather than trying to reach a compromise.

Both sides can claim they are still optimistic until they are blue in the face, very few people are buying it, and as such it looks increasingly likely that we are heading for an extension of some sort.

On the data front the latest industrial and manufacturing production numbers for August aren’t expected to paint a particularly positive picture however the UK isn’t unique in that given this morning’s awful French numbers.

It’s anybody’s guess where US markets will open later today, but on current pricing they look set to open modestly weaker as investors remain on edge when it comes to the latest twist and turn in the US, China trade saga.

Boeing shares are expected to be in focus on reports that the FAA has found cracks in the wing supports of 36 Boeing 737’s in what is another setback for the US aerospace giant. South West Airlines is also likely to be hit given that it has had to pull two of its planes out of service pending repairs.

We also have the latest Q3 numbers from Delta Airlines which has managed to fly above the fallout from the Boeing 737 MAX saga, given it doesn’t have any of those planes in its fleet. There’s a lot to be said for getting on a plane and not being worried about it falling out of the sky. For Q3 profits are expected to come in at $2.27c a share, with revenues needing to come in near to the levels seen in Q2 if management are to meet targets of total full year revenues of around $47bn.

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