Having set new record highs earlier this week US stocks slipped back yesterday, after President Trump reminded investors, that despite the resumption of trade talks with China, the prospect of putting tariffs on the remaining $325bn of Chinese goods remained a clear and present threat.
This softer US finish also translated into a weaker Asia session, with good news in pretty short supply which helps explain why US markets have continued to diverge from their global peers. Rising trade tensions between South Korea and Japan aren’t exactly helping either, while the latest Singapore trade export data for June posted its worst drop since 2013.
Despite this caution recent US and Chinese data has been fairly positive, with the US economy still looking fairly solid while the latest China data for June was better than expected for retail sales and industrial production.
European markets have also opened modestly lower, with the FTSE 100 outperforming due to a weaker pound, while the DAX has continued to look a little soggy.
On the companies front utilities company Severn Trent reported that its latest numbers for the period from the 1st April were pretty much in line with expectations, and that it remained on target to deliver on its full year outlook.
The construction and housebuilding sector has been a significant barometer in terms of how the UK economy has been faring over the last couple of years, with the collapse of Carillion, as well as the well documented difficulties being faced by the likes of Kier Group.
In April Galliford Try’s share price tumbled after the company issued a profits warning saying that it expected its profits to be lower by £30-£40m, due to higher costs as a result of the completion of the Queensferry Crossing. Having also been caught up in the cross currents of the Carillion collapse after incurring extra costs there, the company said it would be looking to shrink the size of its construction business, and announced that it would be conducting a review of its business.
Since the April share price drop the shares have recovered some of those losses and this morning’s latest trading update hasn’t seen any further unpleasant surprises, with the company reaffirming the guidance from April. The current order book is £2.9bn with 88% of the revenues for the new financial year secured, which suggest that there are no cash flow concerns here, and this has helped the shares get off to a positive start this morning.
Travel and insurance group Saga has seen its share price rise sharply after Elliott Capital reported that it had taken a 5% stake in the business. Since its IPO in 2014, Saga shares have dropped over 70%, as management have struggled to tap into an over 50s market, which should be extremely lucrative. The company, which has over 2 million customers, cut its dividend in April, while also writing down the value of the business by £310m.
The insurance business has been the main weak spot due to the growth of price comparison websites, and it is here that the company needs to focus its attention. Its travel division has performed better, and this morning’s news that Elliott Capital has taken a stake could well be the beginning of a concerted move to ramp up the pressure on management to start earning their money and boost returns.
The pound has continued to come under pressure dropping below 1.2400 and a two year low as concerns grow that the UK is heading ever closer towards a no deal Brexit. Putting to one side that this remains the current legal default position, and there appears to no majority in the House of Commons to prevent it, a no deal Brexit hasn’t become any more or less likely now than it was a few weeks ago. Nothing has changed in the last month, whoever becomes leader of the Conservative party given the current political mathematics, and that isn’t likely to change unless there is another election between now and October.
Today’s UK inflation data is unlikely to shift the dial with respect to the pounds overall direction. Yesterday’s wages data was unambiguously positive, as was the low unemployment rare. In any other scenario we would be talking about the prospect of a rate rise, however against the current political backdrop the odds remain firmly tilted towards a rate cut. Headline inflation is expected to remain subdued at 2% with core prices at 1.8%.
US markets look set to open modestly higher as US earnings season continues with the release of the latest Q2 numbers from Netflix. In April the company reported Q1 numbers that blew away expectations, coming in at $0.76c as the business continued to add users at home as well as abroad. Revenues also rose by 22% in Q1 and are expected to rise further in Q2 to $4.92bn. profits are expected to come in lower at $0.56c a share, as higher program spending as well as the prospect of increased competition weighs on margins. The recent price increases should help to cushion some of that effect.
Amazon shares are also likely to be in focus after the EU said it would be investigating the company with respect to how it uses merchants data on its Marketplace platform. The tech giants are increasingly coming under the spotlight from regulators in terms of how they use customer and client data. In the last few weeks Alphabet has been fined €4.3bn in respect of its practices in the mobile market, while Facebook is set to receive a $5bn fine from the US FTC for Cambridge Analytica data issues.
It is increasingly becoming apparent that the dominant positions of these US tech giants is going to invite more fines from governments and regulators keen to crack down on what they see is anti-competitive behaviour.
Tesla shares have been on the up in recent weeks, helped by the prospect that the company is on course to get close to its target of 400k deliveries in a calendar year. Overnight the company reported that to help meet this target it is discontinuing some of the cheaper versions of its Model S and Model X cars while also cutting prices on its Model 3’s.
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