Stock markets are largely higher today, but the move feels hollow as political and economic relations are still strained. 

Europe

Today is the sunshine after the rain, but the dark clouds are unlikely to be gone for good. Beijing took their time before hitting back at the US, but the threat to reduce rare earth mineral exports to the US was a big step up in trade tensions. A state controlled newspaper made the Chinese government’s feelings clear as one of the quotes was ‘don’t say we didn’t warn you’. That line was been trotted out by Beijing in the past, but that was for actual wars, first India and then Vietnam. It was reported that China are prepared to endure ‘hard times of war’ and that is a clear sign that Beijing mean business. China accused the US of ‘economic terrorism’, and the ratcheting up of language in the past 24 hours, suggests the volatile times are not over.  

Political troubles continue to brew in Italy as joint deputy prime minister, Matteo Salvini, threatened to bring the coalition government down, unless the Five Star Movement support his tax cut plan. Mr Salvini is doubling down on his tough stance against Brussels, and now he is taking a firm line with his coalition partners. The news spooked the Italian government bond market, and caused the FTSEMIB to underperform.

FirstGroup confirmed they are planning to spin-off the underperforming Greyhound business. The unit has been holding the group back for some time, and an activist investor, Coast Capital, has been calling for the breakup of the group. FirstGroup’s management claim the decline in the price of fuel for cars, and competitive airfares was the motivation for the planned sell-off of the business. The UK operation is likely to incur some changes too as the ‘risk and reward’ balance in the rail division will be accessed, and the bus business will undergo ‘structural changes’. Traders welcomed the announcements, and this could be the beginning of further restructuring of the group.  The stock briefly hit its highest level since July 2017, but handed back some of the gains in the afternoon.

Daily Mail & General Trust issued solid first-half numbers. Adjusted pre-tax profit increased by 19%, which exceeded equity analysts’ expectations. The company posted a minimal increase in revenue, but the interim dividend was lifted by 3%. The business-to-business division saw ‘continued growth’ and the consumer media unit performed well.

De La Rue shares dumped on the back of a profit warning. The firm cautioned that earnings will be ‘somewhat lower’, and it issued a downbeat outlook too, as it foresees ‘significant challenges’ ahead. The passport and bank note manufacturer took a hit when it didn’t get the contract for the new blue British passports, and now it t is saying the banknote market is competitive. Adding to its woes, the firm took a hit of £18 million after the Venezuelan central bank was unable to pay its bill. The group announced a cost cutting scheme, and it hopes to raise £20 million over the next three years. The CEO will stepdown, and investor confidence is likely to remain downbeat until the firm gets a new leader, and a new strategy is put in place. 

US

The Trump administration has digested the response, and there are reports the US are looking into ways to reduce its dependence on rare earth metals. The minerals are used in a wide range of industries like smart phones and the glass business, and the US don’t want to let China know how much a restriction would hit them. Despite the heating up of tensions, President Trump said the US is doing well in the trade talks with China and he claimed that China would love to do a deal with the US, but the lack of detail suggests that Washington DC are mulling their next move. The S&P 500 and NASDAQ 100 are a little today, as short covering kicks-in.

The second reading of first-quarter GDP came in at 3.1%, a slight revision down from 3.2%. The jobless claims rate edged up to 215,000 from the revised 212,000, but nonetheless the labour market is still deemed to be strong. Pending home sales dropped by 1.5% on a monthly basis, which was a big shock as economists were anticipating a 0.9% rise.

Dollar General posted solid figures. First-quarter EPS was $1.48, which was an 8% increase on last year’s figure, and it topped the forecast of $1.39. Same-store-sales jumped at 3.8%, and the consensus estimate was 2.88%. The group plans to open 975 stores in 2019, and it intends to remodel 1,000 shops, and that is a bullish outlook. Shoppers have become savvier in recent years, and Dollar General are reaping the rewards. The stock has rallied this afternoon.

On the other hand, Dollar Tree pruned its full-year EPS forecast to between $4.77 and $5.07, and the previous outlook was for between $4.85 and $5.25. The retailer cited freight expenses, and costs connected to store closures for the lowering of the guidance. Quarterly same-store-sales was 2.5%, which undershot the 2.9% consensus estimate. The drawback of running a discount store is that you must endure your costs are kept to minimum, and it seems that its rival Dollar General are ahead of the curve.

FX

There has been little movement in the US dollar index despite political and trade tensions. The greenback is essentially flat on the day, and that chimes in with the move we saw earlier in the week.

EUR/USD hasn’t really reacted to political goings on in Italy, and the poor Spanish CPI numbers failed to attract much interest earlier today. The inflation rate dropped to 0.9%, from 1.6%, and that points to a decent fall in demand.  

Commodities

Oil saw a jump in volatility on the back for the Energy Information Administration results. US oil stockpiles dropped by 282,000 barrels and the consensus was for an 857,000 barrel decline. Gasoline inventories jumped by 2.2 million barrels, and dealers were anticipating a 528,000 barrel drop – and that drove energy prices lower.

Gold edged a little higher today but it still remains in the relatively small range it has been in for the past week. The last few days have seen stocks plunge, government bond yields grind lower, but gold has failed to clear $1,290 ,and it seems there isn’t much appetite for the metal. 

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