Europe

It’s been a disappointing end to what has been a turbulent week for European stocks with three days of gains bookended by what looks like will be two days of losses, with investors reluctant to run too much risk heading into the weekend, given how last weekend turned out, as markets fell sharply on the Monday.

With markets already pricing in the delay of US tariffs on EU and Japanese car imports, the confirmation by the White House of the 180 day delay barely caused a ripple, though BMW shares have dropped sharply after the company announced a recall of over 106k vehicles in the US due to a safety issue with respect to the B-Pillar inside the passenger compartment.

Metro Bank which has been in the news recently for all the wrong reasons has seen its shares rise sharply today after announcing that had obtained new funding of £375m at 500p, as it looks to rebuild its capital buffers after an accounting mistake caused it to undervalue its risk weightings on its commercial loans book.

While this is welcome news in terms of plugging the hole in its balance sheet, it doesn’t answer the questions with respect to the overall corporate governance of the bank, or its management, which can best be described as amateurish.  Both the Chairman Vernon Hill and CEO Craig Donaldson are likely to come under pressure at next week’s AGM to step down in light of the recent scandal, as it has become quite apparent that certain sections of senior management lack accountability.

In the last twelve months the shares have lost 80% of their value even accounting for today’s rebound. That’s an awful lot of value lost for shareholders to absorb and someone needs to be held accountable for that. Expect sparks to fly next week.

Easyjet shares have shrugged off this morning’s rather downbeat update in what can only be described as a relief rebound that more bad news wasn’t coming further down the line. A pre-tax loss of £272m isn’t great but it was expected and the fact that the future outlook wasn’t any worse would appear to suggest that most of the bad news was priced in.

Travel operator Thomas Cook’s woes have gone from bad to worse after Citigroup downgraded the shares to sell with a 0p price target. The calculation here would appear to be that debt levels of £1.25bn are likely to result in a fire sale of assets unless the outlook for the business starts to improve quickly. Investors appear to be losing confidence in the ability of management to turn the ailing business around.

Just Eat shares have also dropped sharply on the news that Amazon has taken a $575m stake in its main competitor Deliveroo. As a statement of intent it is a huge shot across the bows of not only Just Eat, but Uber Eats and the wider market in general as the competition in the on-line delivery sector ramps up even more. 

US

US markets have also slipped back taking their cues from markets in Europe as investors retreat to the sidelines ahead of the weekend,though reports that the US may well remove steel and aluminium tariffs from Canada and Mexico imports has helped pull stocks off their lows.

As a proxy for global trade US agricultural business Deere and Co is a decent bellwether, so when its profits miss expectations you sit up and take notice. The company also cut its full year forecast due to uncertainty in agricultural markets. Deere shares slipped back on the open, hitting their lowest levels this year.

This morning’s news that Amazon has injected $575m into Deliveroo is likely to be badly received by Uber shareholders after the poor performance of the shares since the IPO. In its most recent S1 filing Uber’s food business saw revenues rise 149% to $1.5bn, but that still pales into insignificance to the $9.2bn in revenue from its taxi business. Uber needs to monetise all of its businesses quickly and Amazons ability to throw money at the problem is only likely to depress margins in the sector further. As a result Uber shares have slipped back a little after their 8% gains from yesterday.

Getting a stake in Deliveroo’s delivery infrastructure could also be the start of an attempt by Amazon to broaden its delivery footprint, with respect to same day delivery, as well as expanding its move into the food sector.

Pinterest shares have also dropped sharply on the open after the company announced a loss of $41.4m on revenue of $201.9m. International expansion appears to be investors primary concern given that the scope for expansion in US markets is fairly limited. The shares are still trading at a premium to the IPO price, but management would do well to implement a plan that is able to offset the some of the cost effects of the recent IPO which are likely to weigh in their Q2 numbers.

This year’s second biggest IPO is set to get underway later today as Avantor makes its debut on the New York Stock Exchange with a price range of $14 - $15 a share. 

FX

The pound has continued to decline after it was confirmed that Brexit talks between the Labour Party and the government had ended without agreement. This shouldn’t really have been too much of a surprise as both sides have been going through the motions for days now.

It is also becoming increasingly apparent that Prime Minister Theresa May’s premiership is on borrowed time, particularly since most opinion polls are showing the Conservative party at historically low polling levels. With the prospect of a new Prime Minister, a general election or the prospect of a Labour government, investors appear to be taking the view that from a political point of view, and the low calibre of politicians on all sides, the UK is running the risk of becoming uninvestable.   

The Australian dollar has also continued to slide ahead of this weekend’s Australian Federal elections weighed down by a combination of concerns about the direction of China’s economy , the prospect of a rate cut next month from the Reserve Bank of Australia and a slowing economy. It looks increasingly likely that we could see further losses in the days ahead

Commodities

Having failed to overcome $1,300 earlier this week, gold prices have plunged in the last two days and despite today’s weakness in equity markets, could well finish the week in negative territory. Who could have predicted that earlier this week, yet here we are as the yellow metal retreats in the face of a stronger US dollar. The suddenness of the move lower is likely to be a worry for gold bulls and could precipitate further losses if we break below the $1,280 level, despite the fact that equity markets are also likely to finish the week lower.

Oil prices on the other hand have maintained a firm bias, despite concerns about lower demand as geopolitical risk helps under pin prices. The arrival of a US naval task force in the Arabian Gulf has certainly raised tensions pushing Brent prices back to three week highs. US prices have lagged a little but still remain near the top end of the recent range, at a time when US car use tends to rise as driving season gets under way.

All those crypto bulls who got carried  away with this week’s surge above $8,000 in bitcoin are likely to be crying into their wallets today as the crypto currency drops sharply for the second day in succession, dropping below the $7,000 level in the process before rebounding modestly.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.