It’s been a choppy session for stocks today as trade tensions continue to drive the ebb and flow of capital in and out of bond and stock markets.

The rebound in equity markets, which looked a little tenuous early yesterday, appears to now being confirmed by a move out of the Japanese yen, gold and government bonds, which would suggest that for now, investors feel more comfortable in taking on a little bit more risk, despite the fluid nature of the current trade environment.

The decision by the US to put Huawei on its international watch list appears to be being interpreted as a negotiation tactic on the part of the US with respect to try and exact concessions from China on the trade front.

European market update

The German DAX has outperformed, but not because German automakers have continued their strong surge of yesterday, it’s been mainly as a result of an outperformance ThyssenKrupp and other industrials.

Basic resource stocks have helped underpin the FTSE 100 led by Anglo American after the company gained approval for the construction of a new diamond recovery vessel which could add another 500,000 carats of annual production.

The biggest fallers on the main index today have been luxury fashion label Burberry after reporting full year revenues in line with expectations at £2.72bn, along with TUI Travel, after sector peer Thomas Cook posted a huge loss in its first half numbers.

Starting with Burberry we saw operating profit rise 7% to £437m, however there was little indication that the new fashion range by new chief creative officer Riccardo Tisci had helped boost the numbers given that the range only hit the stores at the end of February. New CEO Marco Gobbetti appears to be on the right track, however investors still seem unconvinced with markets in Asia still suffering cross winds from the slowdown in that area.

Its main competitors like LVMH and Hermes have shown the way in the last six months leaving the British fashion house lagging well behind, with their shares hitting record highs. Burberry has some catching up to do from the record highs of last year.

Yesterday TUI Travel reported a disappointing set of numbers with most of the weakness in Q2. Today’s numbers from Thomas Cook haven’t been any better, the company posting a H1 operating loss of £315m, on revenues of just over £3bn. When a goodwill impairment of £1.1bn is included the loss comes in at £1.45bn.

Its shares are down over 80% in the last 12 months after two profit warnings, and now trading at six year lows, while TUI Travel’s shares have sunk in sympathy.

Markets appear to have been spooked by disappointing guidance against a backdrop of £1.2bn worth of debt and the announcement of a new £300m secured banking facility with its lenders, which on the face of it appears designed only to prolong the company’s slow decline.

Management have said that there have been multiple bids for various parts of its airline businesses, as they look to raise funds to shore up the balance sheet. They will certainly need to be able to unlock some value in the coming weeks if they are able to make inroads into the huge debt pile.

National Grid has also continued its falls from yesterday after operating profits fell 18% to £2.87bn. there is also some residual concern over the plans of the opposition Labour Party to appropriate the company in order to take it back into public ownership, in contravention of normal conventions of international law.

It does seem rather strange that a political party would look to undertake a course of action that if a private company were to carry it out, they would quite rightly be accused of asset stripping. 

US market update

US markets opened higher today, helped by better than expected numbers from Walmart and Cisco Systems, and a decline in weekly jobless claims to 212k.

Walmart’s latest Q1 numbers showed that revenues came in over $1bn light at $123.9bn, below expectations of $124.9bn. Profits on the other hand did come in higher at $1.13c a share. On line sales were once again decent outperformers rising 37%, with Walmart saying that the company may well have to raise prices to offset the impact of rising tariffs.

Investors didn’t seem overly concerned about the revenue miss, choosing to focus on the sales growth numbers, pushing the shares back close to one month highs.

Cisco Systems also posted some decent numbers with profits of $0.77c a share, up 18% from the same period a year ago. Revenues also rose nicely, coming in at $13bn, with security division sales helping drive the rise. The company was fairly sanguine about the effects of Chinese tariffs saying that modifications to its supply chain would mitigate some of the negative effects. 

After the bell we are also set to get the latest numbers from new IPO Pinterest as well as US chip-maker NVidia.

As far as Pinterest is concerned the primary focus is likely to be on whether it expanded its user base beyond their core audience, which is 80% women. This would entail the business looking to extend their appeal to a much broader demographic without alienating their existing core user base. IPO costs are likely to increase its losses for this quarter.

NVidia will be looking for stabilisation after a disappointing end to last year, and a profit warning a few months ago.

Forex analysis

The pound has continued to sink, against both the US dollar and euro as speculation about the future of Theresa May as UK prime minister ratchets higher. Against the euro the pound has declined for eight days in a row, on course for its worst sequence of losses in over 15 years.

With reports that the backbench Conservative Party 1922 committee is looking for her to set out a timetable for departure, the prime minister seems determined to try and push her withdrawal agreement forward for a fourth attempt, as she strives to get beyond the end of May, which would put her above Gordon Brown in terms of length of tenure.

Whichever side of the political divide you sit, it is becoming increasingly clear that we appear to be in the dying embers of Theresa May’s premiership and the pound's slide appears to be reflecting that, as the fight begins to step into her shoes from a proverbial alphabet soup of contenders, with Boris Johnson likely to be an early front runner.

The Canadian dollar has had a better day of it, helped by a rise in oil prices but also a decent ADP employment report for April, which showed that the Canadian economy added 61.7k jobs last month, building on the 76.7k added in March.

Manufacturing sales also rose 2.1% for March easily beating expectations of 1.5%, indicating that the Canadian economy is probably not as moribund as had been previously suspected.   

Commodities analysis

Rising tension in the Middle East appears to be helping support oil prices after the US pulled embassy staff out of Baghdad, as a result of rising tension with Iran . Saudi Arabia has also stepped up its accusations that Iran ordered attacks on its Aramco pipeline, pushing Brent crude prices back above $73 a barrel.

Gold prices have slipped back after trying and failing to hold above the $1,300 level, and as trade tensions ease somewhat as investors wait for the next shoe to drop. 

 

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