In a low volume start to the week, markets in Europe had a mixed start to the week yesterday, as in the absence of US markets there was little in the way of drivers, positive or negative, to push them strongly one way or the other.
With US, China trade talks extending into this week, as Chinese negotiators head to Washington, it is clear that many sources of tension remain, notwithstanding concerns about Chinese telecoms giant Huawei, who the US have accused of using their equipment to spy and gather secrets about US intellectual property.
In Europe concerns about possible US tariffs on European carmakers are raising the temperature politically and this appears to be weighing on the upside for markets in Europe.
On the earnings front HSBC has reported full year profits before tax of $19.9bn that came in slightly below consensus expectations, with the bank citing Q4 factors of stock market volatility, a slowing Chinese economy. Overall revenues were also disappointing, coming in at $53.8bn, below expectations of $54.7bn. The sharp declines in stock markets at the end of last year, particularly affected the wealth management division which underperformed, and while these numbers are still fairly decent they haven’t been good enough to push the stock through its 200 day MA, rejecting it for the fourth time since October.
In the mining complex Australian mega miner BHP Billiton’s latest half year numbers showed that despite soaring iron ore prices, supply disruptions in its copper and iron ore divisions were a drag on overall activity, as it reported net profits of $3.76bn. with revenues coming in at $21.59bn management said they were confident that the second half, would help offset the underperformance in the first half the year.
The travel and leisure sector have had its fair share of negative headlines in recent months, with airlines going under, and travel companies issuing profit warnings.
The hotel sector has been no different with companies like Marriott, Accor and Intercontinental Hotels Group looking to revamp their offerings, with new hotels and increased capacity, which have served to increase supply but exert downward pressure on margins. The increasing popularity of AirBnB isn’t exactly helping either.
This increased competition is also manifesting itself in the hotel sector after this morning’s full year numbers from Holiday Inn owner Intercontinental Hotels which has seen group full year revenue increase by 6% to $4.33bn, but operating profits slide by 7% to $670m. With exceptional items of $104m in respect of legal costs and other costs related to the ongoing efficiency program this total came down to $566m.Revenue per room also rose by 2.5% for the full year, while the company announced an increase of the dividend by 10% to 114.4c.
The return of US markets is likely to see a slightly lower open after last weeks end of week surge with attention set to shift back to company earnings, with Wal-Mart set to announce its latest Q4 numbers.
We’ve already seen a fairly muted reaction to Amazon’s most recent numbers and with the sharp decline in US retail sales in December, Wal-Mart's numbers will be closed analysed for any weakness in not only in its home market, but also in India, where it recently paid a hefty fee for Flipkart.
In October the company downgraded its earnings outlook for 2019 citing the impact of higher costs in absorbing its acquisition of India’s Flipkart for $16bn. It also warned that sales growth in its e-commerce division would be 5% lower in 2019 than this year, with growth of 35% expected, below this year’s expected 40% rise. Walmart’s share price hasn’t moved too far from where it was back in October and as such investors will be expecting the company to easily meet its lowered expectations for Q4.
The pound has held up fairly well given recent events with opinion divided whether the splits in the Labour Party are a good or bad thing. In terms of making a no deal Brexit more or less likely they probably don’t shift the dial that much.
We already know parliament is irrevocably split on this question and recent events don’t alter that fact. What recent events do probably tell us is that it will be much more difficult for Labour leader Jeremy Corbyn to become Prime Minister. Even if there were a new general election it is hard to see how he could possibly govern with any sort of majority.
There was some more bad news this morning with confirmation that Honda would be ceasing production of cars at its Swindon plant from 2021, the company citing a decision to move its production and investment into electric cars, with the company also looking to close a plant in Turkey.
Concerns over jobs losses haven’t just been confined to the auto sector, with retail also seeing significant numbers of job losses in the past few months. Thus far we haven’t seen much evidence of these job losses showing up in the unemployment numbers, but at some point, they will have to.
Today’s latest unemployment numbers for the three months to December show unemployment steady at 4%, while wages edged up from 3.3% to 3.4%, in another welcome boost for the UK consumer, and a rare bit of good news at a time when good news is pretty thin on the ground in this Brexit news cycle.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
