China has threatened to restrict the export of rare earth minerals to the US as a way of letting President Trump know they mean business. 

Europe

Beijing has hit back at the US and the ball is now in Trump’s court. Trade tensions have certainty gone up a notch, and investors are running for the hills. European markets have also to contend with the rising political tensions between Italy the EU. The Italian government wants to keep the economy motoring along, and that entails running a budget deficit, and in turn incurring higher debt levels, while Brussels wants the administration in Rome to curb debt levels. Investors fear the political fight could trigger a debt and banking crisis in Italy.  

Kantar Research showed that Aldi and Lidl continue to disrupt the UK supermarket sector. The old guard is feeling the pain of the popularity of the German deep discounters. In the 12 weeks until 19 May, Tesco’s sales were flat, while Sainsbury’s, Asda and Morrisons all posted like-for-like (LFL) sales declines of 1.7%, 0.2% and 0.4% respectively. On the flip side, Aldi and Lidl registered LFL revenue increases of 11.1% and 8.5% respectively. 

Telford Homes revealed that full-year earnings before tax dropped by 12.8% to £40.1 million. The market reaction was muted as the company previously lowered it’s guidance to the £40 million mark, so a lot of today’s news was already priced-in. The house building sector was been dogged by Brexit uncertainty, and Telford are no exception. The group deliberately focused more on lower risk projects, and devoted more resources to build-to-rent operations, and that was part of the reason for the decline in profit.

Stobart shares have rallied after the company issued a largely positive set of full-year figures. Revenue jumped by 39%. The loss soared from £23.9 million to £58.2 million, the firm did incur a number of unique one-off charges. Underlying profit was over £10 million. In recent years, the company has sold-off non-core assets, and this year was described as ‘transformational’ and the firm issued an upbeat outlook. Last week the stock dropped to its lowest level in over two years, and if this week’s rebound continues it might retest the 150p area.   

US

The major indices are all in the red as the trade tensions are felt on Wall Street. The suggestion from Beijing that they might look to restrict rare earth minerals to the US has sent a shockwave through the markets, and given that China accounts for roughly 70% of global output of the minerals, the US government needs to take the threat seriously.

Abercrombie & Fitch shares sold-off severely on the open as the company missed sales predictions. First-quarter same-store-sales came in at 1%, but traders were anticipating an increase of 1.3%. The company foresees second-quarter net sales to increase by 2%, but the consensus estimate was 2.8%. Investors had high hopes for the group’s Hollister brand, and the unit posted a 2% rise in same-store-sales, but that was well below the 3.3% forecast. The numbers suggest the group needs to devote more time and resources to online sales, and it seems to be finding it tough on the high street.

Canada Goose shares suffered big losses also. Fourth-quarter revenue jumped by 25% to C$156.2 million, which narrowly undershot the consensus estimate of C$156.8 million. For most companies a jump in quarterly revenue of 25% would be welcomed, but for Caanda Goose, it was the slowest rate in eight quarters, and the company is anticipating full-year growth of 20% - which would be a further slowdown.  

FX

USD/CAD hit its highest level since January in the wake of the Bank of the Canada keeping rates on hold at 1.75% - meeting forecasts. The central bank declared that the accommodation provided by the existing interest remain appropriate, and that suggests the organisation is content to sit on its hands. Commodities are getting hit hard today, and given Canada’s dependency on natural resources, the Canadian dollar is feeling the pain.

EUR/USD has been hurt by the latest eurozone data, and the firmer dollar is playing a part too. French CPI cooled to 1.1%, from 1.5% in April, and keep in mind economists were expecting 1.2%. The drop in the cost of living suggests demand is dwindling. Adding to that, the German unemployment rate edged up to 5%, and when you consider the deep contraction in the German manufacturing sector, it’s not much of a surprise.    

Commodities

Oil has plummeted as traders are worried about demand given the trade standoff between the US and China. Tensions between the two largest economies in the world have ticked up again, and the energy market is getting hurt in the crossfire. Oil is often a good barometer for perceptions about global demand, and the bearish outlook is playing out in the oil market.

Gold and silver have recouped some of yesterday’s losses. Gold has been traditionally seen as a safe haven play, and the metal is benefitting from the slump in global stocks. Since February, gold has been in a downward trend, and while it holds below the $1,300 mark, its outlook is likely to remain bearish.

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