European markets opened higher this morning after the Chinese Commerce Ministry said that China and the US had agreed to lift tariffs in phases as the deal makes progress, though any amount of tariff relief in phase 1 would depend on content.
Having seen markets pause briefly over the course of the past two days on concerns that the talks might get bogged down on the US being resistant to the removal of tariffs, investors appear to be growing in confidence that we will see some progress by year end.
This could well be another false down given the US Presidential election is still a year away and could merely be a case of stating the obvious when it comes to signposting progress. Mapping out a timetable is one thing, implementing it is another and it certainly doesn’t mean progress is likely to be swift.
Rolls Royce latest trading update for the first half of the year appear to show that the company is still struggling to contain the costs of fixing the problems with the Trent 1000 engine. Earlier this year the company announced a surprise £2.9bn loss due to costs involved in fixing problems with its Trent 1000 engines, which power the 787 Dreamliner. This morning the company announced that it was taking a further £1.4bn charge, as well as saying that it expected to see full year operating profits and free cash flow come in towards the lower end of guidance. This has seen the shares plunge in early trading, as the Trent problems start to become Rolls Royce’s equivalent of UK banks PPI problem.
Sainsbury’s latest trading update hasn’t made for particularly encouraging reading, as the company saw a 92% fall in profits. The collapse of the Asda merger earlier this year doesn’t appear to have prompted much in the way of soul-searching amongst senior management, despite the fact that it cost the business £46m. Today’s latest numbers appear to reflect the cost of the collapse of the deal as well as a charge of £229m which represents a re-evaluation of its property portfolio and restructuring costs.
In terms of the underlying business underlying group sales fell 0.2% to £16.86bn. a large part of the reason for thus decline in sales was a 2.5% fall in sales in general merchandise in the first half of the year. Clothing sales were also disappointing, though Q2 was noticeable by a marked improvement on Q1. In terms of clothing and grocery there was a sizeable improvement on Q1, though the underperformance of Argos is likely to be a concern.
Last month the company decided to embark on a significant improvement program with respect to cutting the amount of floor space, when it comes to the store footprint. The plan to close 125 stores was the main headline, however this was offset by an announcement that it would be replacing these with 110 convenience stores, while inserting 80 Argos outlets inside the bigger stores could go some way to doing this, but would still lead to an upfront cost.
Aston Martin’s woes have continued to pile up having come a cropper in the wake of the optimism over last year’s IPO, with the shares down over 70%, after the company warned on sales and profits for the current fiscal year, back in July. This morning the company reported that demand had continued to remain weak in Q3, as the company swung to a £92.3m loss before tax, year to date. On the plus side the company maintained its full year guidance while also noting that cash flow generation improved by £48m, from an outflow of £26m in Q2.
The company will be hoping that the launch of the new DBX on 20th November in Beijing will be able to help boost the order books in the next two quarters so it is able to access $100m extra funding by June next year.
The European banking sector continues to remain challenging as Commerzbank once again downgraded its profit outlook, the second time the bank has done in this in a matter of weeks. CEO Martin Zielke also unveiled a raft of new cost cutting measures. Zielke reiterated his plan to sell off its Polish bank MBank, an incomprehensible decision when you consider the challenges the bank faces domestically. MBank is one of the areas where margins are good, and while a sale would improve cash flow in the short term, its hardly conducive to improving the banks long term future.
Bovis Homes this morning announced it was paying just over a £1bn to absorb Galliford Try’s Linden Homes division. In return Galliford Try shareholders will receive a 29.3% stake in the enlarged firm, while Bovis will raise £157m by way of a share placing.
Today’s latest Bank of England rate decision and inflation report is likely to be marked by a much more pessimistic view of the UK economy, with both inflation and growth forecasts expected to be downgraded.
While we have seen a pickup in Q3 the recent Brexit extension is the worst of all worlds for the central bank. With a general election next month, potentially adding to the uncertain outlook the signs are growing that the economy is being damaged by being stuck in the Brexit waiting room. Not only is it hitting business confidence but consumers are also becoming more cautious, though that may be more down to a rise in political uncertainty, especially if the Labour party make inroads into a position of power on December 12th.
Mark Carney can also probably expect some questions as to whether he intends to stay on beyond his expected new departure date at the end of January, the exact same day as the UK is expected to leave the EU. As with most departure dates that are UK related this is another date that could be subject to an extension.
US markets look set to open at new record highs in the wake of this morning’s comments from the Chinese commerce ministry.
Companies in focus are set to include Qualcomm, who despite being caught in the cross fire of President Trumps trade war has seen its shares push higher year to date albeit in a fairly volatile fashion. Its latest Q4 numbers came in much better than expected. Having cut its guidance for Q4 to $4.3bn back in Q3, yesterday’s numbers came in at $4.8bn, helped by improved revenues from its licensing business, after settling a legal dispute over royalties with Apple. The company also upgraded its Q1 guidance.
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