European stock markets are broadly lower this afternoon, but a strong performance from the German car makers has helped the DAX outperform. 

Europe

By-and-large it has been a positive week for equity markers as traders have high hopes for US-China trade talks. President Trump is due to meet China’s vice premier Liu later today. It was reported that trade negotiations are in the ‘end game’ but nothing is final yet. 

Unicredit shares are in the red after it declared it is interested in acquiring Commerzbank, should the German bank not merge will Deutsche Bank. The Italian banking sector is on shaky ground due to its massive exposure to the Italian government market – which is prone to soft patches. The Italian economy is in recession so Italian government bond yields are likely to be in focus in the months ahead. Unicredit already has exposure to the German banking sector through its subsidiary, HypoVereinsbank. Unicredit is in alright shape for a eurozone bank, but given that profit margins are low in the already oversaturated German banking sector, some traders are wondering, would it be a wise move. 

Saga shares hit an all-time-low today after the firm registered a loss of £134.6 million, and that was largely because of an impairment to goodwill of £310 million. The dividend was slashed by 55% to 4p, and that added to the sour sentiment as the drastic cut in the payout suggests the firm is pessimistic. Looking past the massive write-down, the business fundamentals aren’t great as revenue slipped by 2%, and underlying pre-tax profit fell by 5%.  

AOWorld announced that its full-year core earnings will be at the lower end of expectations. The firm stated that is expects European revenue growth of 32.3%, while some equity analysts were expecting 35%. The group is bracing itself for the UK’s departure from the EU, and it has stockpiled £15 million worth of popular goods. Consumer sentiment in the UK is softening, especially for big ticket items like electrical goods.

US

The S&P 500 is flat on the day, and the NASDAQ 100 is a touch lower as dealers lock-in profits ahead of the meeting between Mr Trump and China’s Liu. Sentiment has been positive on Wall Street this week, and now dealers are taking a breather, as the trade talks continue.

Tesla shares slumped 10% on the open after the company stated it delivered roughly 63,000 car in the first-quarter, and that undershot the 76,000 forecast.  Despite the negative news, the auto-maker said kept its original annual target of between 360,000 and 400,000 vehicles for 2019, and given the slow start to the year, some investors might be sceptical of their ability to reach the target.

Constellation Brands announced that fourth-quarter sales rose by 2% and adjusted EPS were $1.84, which topped the forecast of $1.72. Sales of Modelo and Corona helped the beers division which posted an 11.6% rise in revenue. The group will spin off about 30 brands in a deal that is worth $1.7 billion, and the bulk of the brands that are being disposed of, are lower end wines.

The jobless claims rate fell to 202,000 – its lowest reading since mid-January. Yesterday, the ADP employment report fell to 129,000 from the revised February figure of 197,000. Tomorrow, the non-farm payrolls report will be announced, and dealers will be paying close attention to the update. There is chatter the labour market is tightening.  

FX

EUR/USD has been in decline throughout the day in the wake of the dreadful German factory orders. The report showed a 4.2% decline, which was a major miss from the 0.3% forecast that economists had predicted. Adding to the euro’s woes, was the news that the Italian government will lower its growth forecast to 0.1%, while the previous forecast was 1%.

GBP/USD is a little lower on account of the firmer US dollar. Sterling is holding up as the Brexit gridlock continues. MPs just about voted in favour of asking for an extension to avoid a no-deal Brexit, and that has put a floor under the pound for now. 

Commodities

Gold is in the red this afternoon due to the firmer US dollar. The strong inverse relationship between the two markets continues to play out, and the greenback was given a lift higher on the back of the solid jobless claims report. Should the metal break below the $1,276 region, it might pave the way for further losses.

Oil is largely unchanged today as traders await further developments in the US-China trade talks. The energy was nudged lower yesterday by the unexpectedly large build in US oil stockpiles, but it is not that far away from the five month highs that were printed this week, as optimism about the global economy is increasing.

 

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