Equities are showing modest losses on the back of the US-China trade uncertainty. 

Europe

There was chatter from the US side that phase one of the trade deal won’t be agreed upon until 2020. According to the South China Morning Post, the Trump administration might be open to delaying the tariffs that are due to be imposed on 15 December if a deal is not reached. The conflicting reports regarding trade left traders with a sense of unease as they don’t know which side to believe. Given the absence of clarity, traders are playing it safe and are shying away from stocks.  

Royal Mail revealed that is it behind schedule in its transformation scheme, and that is why the stock sold-off sharply today. The group has been undergoing a turnaround programme as a reaction to the profit warnings that were announced in recent years. First-half adjusted operating profit dropped by 13.2% to £165 million, while the margins fell to 3.2% from 3.9%. A turnaround plan is the sensible thing to do, but it is clear the company still has a lot more work to do. Royal Mail cautioned about the ‘challenging outlook’, and that added to the bearish move too. There were some positive aspects to the update too, as the parcel business is now 26% automated, while one year ago that metric was 12%. The aim is to achieve 80%. Delivery of letters are falling while parcel delivery is on the rise so it will be a closely watched unit of the business. 

Centrica shares are in demand today after the company reassured the market that it would achieve its full-year target in relation to cash as well as earnings. In August, the share price dropped to a level last seen in the late 1990s, which highlights how bearish sentiment has been recently. The group has struggled to retain gas customers as the rise of smaller and more nimble companies has shaken up the old guard. Centrica is still losing gas accounts, but the rate at which it is losing clients is falling so it seems to be a step in the right direction. The group is performing well in in the alternative services division - smart cameras and thermostats and the likes, so that is helping offset the poor gas division. Investment sentiment is so low, any news that suggests the worst is over boosts the stock.  

During the week AO World confirmed plans to sell its Dutch operation on account of the unit posting a wider loss. It appears to be a cut and run move by management, and the freed up capital will be channelled into its more successful German business. The British company has struggled to replicate its domestic success in Continental Europe. On Tuesday the company said that first-half group revenue jumped by 16.3% and its plans for sustainable growth were on trade. The stock has been pushing higher since the announcement. 

US

The trade saga has weighed on stocks a little. There is no clear view of what is going on in the trade discussions, so dealers are erring on the side of caution, and taking cash off the table. The move lower is relatively small, so dealers are clearly not that worried.

The jobless claims reading was in at 227,000, topping the 219,000 that economists were expecting. The last report was revised from 225,000 to 227,000 – the joint highest since June. This news isn’t terrible, but it is mildly concerning, so traders will be paying closer attention to other employment metrics.

Macy’s shares are lower after the company posted largely negative third-quarter numbers. Same-store-sales fell by 3.5%, which undershot the consensus estimate of a 1% fall. It was the first time in two years the metric posted negative growth. Net sales slipped to $5.17, narrowly missing forecasts. To add insult to injury, the group lowered its full-year outlook for same-store-sales, total sales, as well as EPS. An underperformance at shopping malls and reduced spending by international shoppers were cited as factors behind the disappointing update. 

It was reported that Charles Schwab are to buy TD Ameritrade, and the announcement send the stocks up 8% and 20% respectively. Competition in the sector has been heating up as many firms have been offering zero commission, so the onus is on major players to keep costs down, and takeovers are to great way to lower costs through economies of scale.

FX

It was been a quiet day on the currency markets as the few economic announcements that were released failed to make much on an impression on traders.

GBP/USD continues to hold up well as the opinion polls still put the Conservative Party in the lead. The Labour Party revealed economic plans that were not exactly pro-free market, but dealers shrugged off the news as the party is trailing in the polls. The UK deficit edged up to £10.5billion, topping the forecast of £8.6 billion, but traders were unfazed.  

EUR/USD hasn’t moved much even though the flash consumer confidence reading for the eurozone remains weak. The level for November was -7.2, which was a slight improvement from the -7.6 registered in October.

Commodities

Gold is slightly lower today as the metal fails to attract buyers even though some uncertainty exists in stocks on account of the US-China trade situation. The asset has traditionally performed well when traders avoid stocks, but recently gold has been unable to capitalise on the uncertainty, which underlines the bearish move since September. 

WTI and Brent Crude are higher today as major oil producers are likely to vote to support an extension to production cuts next month. Russia is an ally of OPEC, and President Putin stated yesterday that Moscow and OPEC have a ‘common goal’, so traders are buying into the oil market on supply concerns. 

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