Europe

Markets in Europe initially got off to a fairly positive start, however they found the early gains difficult to hold onto as uncertainties over the latest US, China trade discussions kept investors cautious.

This caution lasted until just after the US open when President Trump tweeted that a “BIG DEAL” with China was getting very close. This of course had the wholly intended effect of juicing the markets higher, sending the FTSE100 to one week highs, and markets across Europe higher in general.

It also keeps alive the prospect that the 15th December tariffs may well get deferred and it could well be this that we are leading up to. The US President needs an excuse to defer these tariffs, which means it is entirely in his interests to big up the prospect that a deal is close. There has also been reports that US negotiators are looking to cut existing tariff rates by 50%, on $360bn of Chinese imports.

The best performers have been financials helped by a sharp rise in bond yields, while basic resources stocks have also moved higher, a signal that investors appear to be buying the presidential narrative.

Whether than turns out to be the case remains to be seen. It is important to remember we have been here before with respect to the prospect of an imminent deal, only for the reality to be somewhat different.

On the companies front we’ve seen the latest update for Superdry and its not been a particularly encouraging market reaction with the shares sliding back sharply. Now back in charge of the brand he founded, Julian Dunkerton’s first half year report was pretty sobering reading.

In May the company posted yet another profits warning, the third one in 12 months, and while there are some signs of a recovery, this year is likely to be a period of consolidation.

Today’s half year report showed that total group revenue fell 11% to £369.1m with a loss before tax of £4.2m, and while margins did improve they were undone by currency movements, as well as stock accounting changes. The company also booked charges in relation to inventory of £3.1m, as well as £6.9m in relation to bad debts.

There was a slightly more positive reaction to the latest update from Ocado Retail, and which also helped push Marks and Spencer shares higher. Their joint venture with Marks and Spencer has seen retail revenues rise by 10.8% to £429.1m while average orders per week have increased from 317k a year ago to 350k, a rise of 10.4%.  

US

While US markets got a nice boost from last nights Fed rate decision, those gains looked set to be short lived after markets opened mixed in the wake of this afternoons decision by the European Central Bank to leave rates unchanged, however a timely tweet from President Trump just after the open that a “BIG” China deal was very close, saw US markets quickly jump higher to set fresh record highs. 

US weekly jobless claims were disappointing, particularly in light of the recent fall to 203k, last week we saw a sharp jump higher to 252k, a rise of 49k ,

Apple shares initially dipped lower on the open on reports from Credit Suisse that its iPhone shipments to China were down 35% year on year, following on from a 10% decline in October. 

Delta Airlines has been one of the best performers on the back of an upgrade to its 2020 earnings estimate from a range of $6.70 to $7.75, compared to a consensus of $7.06c, as it continues to reap the benefits of not having any Boeing 737 MAX’s in its fleet.

South West Airlines is also up after reporting it had reached a deal with Boeing over the grounding of its fleet of 737 MAX aircraft.

FX

The euro hit its 200 day MA for the first time in 5 months in the wake of today’s ECB press conference after ECB President Christine Lagarde noted that recent data suggested that the region was undergoing signs of economic stabilisation. While encouraging, there was no indication that the ECB was considering further measures at this time to help boost or underpin the stabilisation. There was some minor tweaks to the inflation and growth forecasts but nothing significant in the wider scheme of things

The pound has had a choppy day, on the back of some profit taking as nervousness starts to creep in ahead of the close of the polls later tonight. With widespread reports of queues outside polling stations, despite today’s bad weather, investors are trying to parse what the might mean in terms of the final outcome, and people’s voting intentions.  

As is normal when there is big push higher in risky assets, the Japanese yen is the biggest faller, hitting its lowest level in a week against the US dollar, while US treasury yields also rose sharply.

Commodities

Gold has slipped back on the back of President Trump’s tweet about the prospect of a China, US trade deal, and the possibility that some tariffs might be rolled back.

Crude oil prices have also remained well supported, helped by a favourable outlook from the US Federal Reserve, as well as comments from the ECB that some of the recent data pointed to a stabilisation in economic conditions. It’s also been helped by reports that a US, China trade deal may well be close.


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