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Berkeley lower after cautious outlook, China softens stance over trade

market relief

market relief

Equity markets are higher today as traders are less fearful about the prospect of a trade war between the US and China after Beijing stated they would prefer to settle this trade dispute with dialogue. 

The Chinese economy is cooling and it is believed that it could slow further if they engage in a trade war with the US. Traders are content to pick up relatively cheap stocks while trade tensions have subsided. 

Berkeley Group shares are in the red after the company announced solid full-year figures, but the outlook was a little cautious. Revenue fell by 0.7% to £2.703 billion, which was just shy of the £2.729 billion estimate. Pre-tax profits rose by 15.1% to £934.9 million, while the consensus was £905.08 million. The home builder now expects to make at least £3.375 billion in pre-tax profit between May 2016 and May 2021. The most recent guidance was £3.3 billion, and the original target was £3 billion, so the rate at which the target is being increased is clearly cooling. The company announced they are at peak profitability and cautioned that profits could fall as much as 30%. The stock is lower today, but if it can hold above its 200-day moving average at 3,925p, its outlook might remain positive, and it could retest the 4,300p region.

Stockbroking firm Peel Hunt issued a 1,700p price target for Ocado Group – it’s worth noting the finance house is taking a 15-year view on the stock. Peel Hunt declared Ocado the ‘Microsoft of retail’, which is high praise indeed. The timing of the positive note is good for Ocado as the stock is recovering from a pullback.

Legal & General confirmed they anticipate their asset management division will increase profit by 10% in normal markets. Nigel Wilson, the CEO, announced the company is in a stronger position for owning a top asset manager. The share price has been broadly moving higher since June 2016, and if the bullish move continues it could target 287p.

Starbucks will be in focus today after the company reduced its third-quarter sales forecast yesterday. The firm is planning on ramping up the number of store closures next year. A more aggressive stance will be taken on underperforming stores. Starbucks plans to return $25 billion to shareholders through 2020, and that compares with the previous target of $15 billion.

The US dollar index has extended its gains, and this has put pressure on EUR/USD and GBP/USD. The greenback is in demand as protectionist policies have a history of pushing up inflation. 

At 3pm (UK time) the US will release the latest existing home sales report, and the consensus estimate is 5.52 million.

We are expecting the Dow Jones to open up 125 points at 24,825 and we are calling the S&P 500 up 10 points at 2,772.

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