The FTSE 100 is lower this afternoon as health care, energy and banking stocks are in the red.

Europe

Corporate updates triggered the declines in the pharma sector as well as the banking industry. Dealers are still worried about the health emergency in China as the situation isn’t showing any signs of improving. Should the situation in China get severely worse, traders’ suspect the Beijing authorities would be quick to intervene and assist the markets, hence why selling pressure isn’t too high.

RBS shares have lost ground today as the outlook for the bank isn’t too hot. The bank will cut back the NatWest Markets division – its investment banking arm, so lending is likely to become a more important part of the business. Lending is lower risk but the problems the bank is facing is lower returns in that area. Net interest margin slipped from 2.09% to 1.99%. In light of the depressed interest rate environment, the income from lending is likely to remain under pressure. In a historic move RBS Group will change its name to NatWest Group later this year, presumably the decision was motivated by the desire to cast off the image of the firm’s historic bailout in 2008 – the largest bailout in Europe.  

The coronavirus crisis in China is likely to have a negative impact on AstraZeneca. China is a big market for the company and from a logistics point of view the nation is vital to the pharmaceutical sector as a whole. AstraZeneca now foresee that a high single digit to low double digit sales growth rate for the year ahead. We are not going to know the full extent of the health emergency for some time, but dealers are likely to be cautious. The group saw profits fall by 46% to $577 million in the final quarter, when compared with the same period last year.

Segro continues to perform well as the company specialises in warehouses that are used for online retailers – which are stealing business from high street operators. The stock hit a fresh all-time high today as on the back of the robust full-year figures. Adjusted profits before tax jumped by over 10%, while the net asset value increased by nearly 9%. The full-year dividend was upped by just over 10%. At the end of the day Segro is property firm so the update was never going to be overly exciting, but it was a solid set of numbers.   

Dunelm posted solid figure on Wednesday and that promoted UBS to hike its price target to 1,110p from 1,070p.  

US

Trading on Wall Street is also subdued as traders are conscious of the health crisis. It seems as if traders don’t know what to do next as the health crisis is deepening, but the US and China are due to lower levies on each other’s imports in bid to improve the trading relationship. The US retail sales report showed 0.3% growth, which met forecasts and the December reading of 0.2% was revised higher to 0.3%. The University of Michigan consumer sentiment preliminary reading was 100.9, topping the 99.5 forecast. The updates paints the retail sector in a positive light.      

Traders are snapping up Canopy Group shares after the company revealed a narrower loss. In the third-quarter the company incurred a loss of C$92 million, which was an improvement on the C$156 million loss in the previous quarter. The company cut costs by 59%, which clearly helped it narrow its loss. Revenue surged by nearly 50% to C$123.8 million. The medical marijuana company seems to be getting it house in order as higher sales and lower costs are a good combination.

Expedia shares have jump after the company said it anticipates cost savings to be $300-$500 million. The tourist company has been caught up in the coronavirus crisis, hence it didn’t issue a guidance for 2020, but it did confirm that earnings growth will be ‘in the double digits’. 

FX

EUR/USD has recouped some of the ground it lost recently. The single currency fell to a level last seen in May 2017, but short covering as well as bargain hunting has helped push up the euro. The eurozone GDP report showed the area grew by 0.1% in the final quarter of 2019. The reading was in line with forecasts so the reaction was muted but the level of growth is poor.

GBP/USD is in the red after yesterday’s impressive rally. Rishi Sunak, the new Chancellor of the Exchequer, is more likely to be influenced by Prime Minster Johnson – who is thought to be keen to go on a Trump-esque spending spree. Traders are optimistic that pro-business policies are in the pipeline for the UK so sterling’s wider positive move could continue.   

Commodities

Gold is creeping higher and it has hit its highest level in over 10 days. The lack of bullish sentiment in global stocks seen traders turn to gold. The metal traditionally does well when equities are under pressure but it appears that dealers are keen to be long the metal over the weekend in case the health crisis in China takes another turn for the worst. 

WTI as well as Brent crude are in positive territory despite the continued uncertainty surrounding China. The nation is a major importer of the energy but it seems as if the market has found a floor as it has pushed higher in the face of a deepening crisis.  

 


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