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BP gets oil boost, but European markets struggle

The plunge protection in Beijing appears to have done its job again in Asia this morning, after the national regulator said it wanted to boost investment in China’s local markets by encouraging share buybacks and M&A activity, though comments by President Trump that he expected to arrive at a “great deal” on trade with China may well have also played a part in seeing a strong Asia session.

There still remains an underlying concern that the US may well widen the scope of its tariffs to include the remaining $257bn of Chinese goods, however for now Asia markets appear to be accentuating the positive.

As a result we’ve seen markets in Europe open higher however these gains proved a little fleeting with the FTSE 100 outperforming as company earnings adding differing amounts of sweet and sour to the overall mix.

UK oil giant BP’s recovery has continued today after the company reported its highest quarterly refining ability in 15 years, while also beating profit expectations for its Q3. Its net profit came in at $3.8bn, well above expectations of $3bn, while profit for the year to date was $9.2bn, well over the $4bn for the same period a year ago.

The boost to profits came about as a result of the early delivery of expansion projects in the Gulf of Mexico and Australia, which boosted overall output. The recent $10bn acquisition from BHP for its US shale assets is expected to complete by the end of this month with the entire transaction expected to be funded by the proceeds of cash generation, assuming oil prices remain near their current levels.

Net debt still remains quite high at $39.2bn, but it is lower from a year ago when it was $39.8bn, putting its debt gearing at 27.5%. The company said it still remains on course to meet its 2018 divestment target of $3bn, which it says it will use to reduce its net debt figure further, while at the same time keeping its gearing ratio between 20-30%.

The company was more cautious on the remainder of the year, saying it expected production to be higher than Q3 with the integration of BHP but for margins to be slightly lower.

No such optimism for consumer goods brand Reckitt Benckiser which has seen its shares dive in early trading after falling short on its Q3 sales numbers. These appear to have been hurt by problems in its health care division, which has experienced problems at one of its manufacturing plants in Europe. Net revenues came in at £3.12bn, coming in short of expectations of £3.2bn.

The pound has had a disappointing start to the week, pushing lower across the board, in the wake of yesterday’s Budget announcement which saw the chancellor of the exchequer loosening the fiscal purse strings a touch, in response to better than expected tax revenues and borrowing numbers which have given him slightly more wriggle room in the public finances.

It has also lost ground against the euro despite the announcement by German chancellor Angela Merkel that she wouldn’t be standing for another term, while also stepping down from her leadership role in the CDU. Weaker than expected Q3 French GDP and consumer spending for September doesn’t appear to have that much of an impact either. 

US markets underwent a volatile session yesterday, finishing the day sharply lower, however in the wake of a positive Asia session those losses look set to be reversed with a positive open in what is expected to be another big week for earnings.

Facebook’s shares are set to be in focus today as it gets set to report its latest Q3 numbers, after an enormously forgettable few months which has seen its share price fall over 34% from its July peaks. Expectations are for profits of $1.473c a share, however the headline numbers are expected to be of lesser importance than whether the number of users has started to decline, or whether the time spent online has dropped off.

With the bad publicity surrounding Cambridge Analytica as well as new GDPR rules, its reputation has taken a battering as concerns over user privacy have started to become more mainstream. The recent controversial decision by Mark Zuckerberg to employ ex-deputy prime minister Nick Clegg as his global head of communications earlier this month certainly raised a few eyebrows, but would appear to show that Facebook want to try and get the inside track on how politics in Europe works in order to try and shape any new regulation that may be coming its way.

Yesterday’s news that the UK is set to consult on a new digital tax on big technology companies also speaks to a direction of travel for governments that is set to see the likes of Facebook and Amazon come under much greater scrutiny in terms of how they report their profits. Against this sort of backdrop, it will also be important to note whether Facebook’s users have cut back the number of hours they spend online. Any drop off in these numbers is likely to be bad news for an already beaten down share price.

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