It’s been a weak start for European markets in the wake of yesterday’s IMF downgrade of its expectations for global growth this year in its latest update on the health of the global economy. This shouldn’t have been a surprise to most investors given the weakness of recent economic data, particularly in Europe. The IMF reserved its steepest cuts for Europe, cutting Germany to 1.3% from 1.9%.
Mining stocks are leading the decliners after BHP released its operational review for the half year which showed that production guidance over the next six month would be unchanged for iron ore, petroleum, and coal. The company reported that lower iron ore shipments cost the business $600m after the freight train derailment and various incidents that curtailed operations in Chile and Australia.
In the latest sign that European banks continue to struggle with the negative rate environment as well as rising political uncertainty, Swiss bank UBS announced that while it saw Q4 net profits improve to $4.9bn in its latest Q4 numbers showed an outflow in client funds of $8bn from its wealth management division, as clients moved into the relative safety of cash. CEO Sergio Ermotti struck a cautious tone on the outlook for Q1 with client activity likely to remain affected by ongoing concerns about geopolitics and trade.
Budget airline Easyjet reported a decent first quarter, in line with expectations, with revenue up 13.7% to £1.3bn. passenger numbers rose by 15% which was helped by an additional 18% in capacity. Total revenue per seat declined by 4%, as a result of cancelled flights and lost revenue due to the pre-Christmas drone issues at Gatwick airport. The company estimated that the Gatwick drone issues cost the business £10m. Despite the uncertainties around Brexit the company said that forward bookings and demand was robust for the period beyond 29th March and said it expected to grow capacity by 10% in 2019, with 15% growth expected in the first half of the year.
With all the focus on the retail sectors woes this morning’s Christmas trading statement from Dixons Carphone makes for sobering reading, though there are some bright spots. Group like for like revenues saw a rise of 1%, however UK like for like mobile sales saw a decline of 7%, and a 12% decline in revenue, as consumers held back from upgrading their mobile phones, bad news for the likes of Apple and Samsung. The electrical side of the business was much more positive and saw a rise of 2%, with gaming being the stand out performer. The international business was much more positive with like for like sales up 5%. On Brexit the company said it had set aside £30-40m of extra stock as part of its preparations.
Royal Dutch Shell shares are also lower after being downgraded by US investment bank Morgan Stanley to underweight with a price target of 2,180p, with the bank blaming falling capex, which in the long term could well impact future revenue potential.
The pound is slightly weaker ahead of this morning’s wages and unemployment data for November, with wage growth set to remain at a 10 year high of 3.3%, and unemployment set to remain steady at 4.1%. Reports that the Labour Party may be starting to falling into line with calls for a second referendum don’t appear to be offering any support to the currency. This may be down to the fact that if it succeeded it would merely prolong the ongoing uncertainty even further into the future, as well as call into question the already precarious nature of the incumbent government.
This weak tone is likely to translate into a weaker US open when US markets return from their long weekend, as US investors turn their attention to a raft of further earnings announcements.
Oilfield services provider Halliburton is expected to announce its latest Q4 numbers in the wake of a poor quarter which saw oil prices drop sharply. Profits are expected to come in at $0.37c a share.
Also due is Johnson and Johnson’s Q4 numbers which are expected to come in at $1.95c a share.
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.
CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.