It’s been a more cautious open for European equity markets as we come to the end of what has been a very positive week for global equities.
Investors appear to be coming to the conclusion that we could be seeing the start of a thaw in US, China trade relations, if this week’s price action in equity and bond markets is any guide.
A sharp rise in bond yields, as bonds sell off, and further record highs for US markets along with the fifth successive week of gains for equity markets here in Europe, appears to have prompted optimism that we could well see the suspension of tariffs in December, as well as the prospect of a rollback of existing tariffs by year end. Gold prices have also fallen sharply reflecting this renewed optimism with the yellow metal on course for its worst weekly decline in over 2 years.
A note of caution, needs to be exercised here, as we have been here before, only to find that both sides have stepped back due to concerns that they may be perceived as having given too much away.
This is one of the major imponderables, as neither side will want to be seen to have come out of this as losing face, thus inviting criticism at home. This may also help explain why China and the US haven’t outlined a date for a signing ceremony for any so-called phase 1 agreement.
On the data front recent PMI’s out of China would appear to suggest a bit of a recovery from the economic low points seen in the summer. This appears to have been reflected in this morning’s Chinese trade data for October, which saw imports decline less than expected, declining 6.4%, while exports, which had been expected to decline 3.9%, only declined 0.9%.
This slight improvement may also have been helped by the suspension of tariff increases that were due to kick in September. Nonetheless the numbers still paint a picture of an economy that is struggling to recover from an economic slowdown and the effects of the current trade impasse.
On a more positive note the German economy showed signs of a better September, with an improvement in both exports and imports, from a disappointing August.
On the companies front Games Workshop announced a better than expected trading update for the first six months of the year. Sales are expected to come in at £140m or better, with profits of a minimum of £55m.
Royal Mail is also in the news as it goes to court to seek an injunction against industrial action by the CWU, claiming irregularities in the ballot. This has always been one of the main risks with Royal Mail having to compete with nimbler and more agile private companies. Its room to manoeuvre when it comes to streamlining any operational procedures, can be hindered by its highly unionised workforce.
British Airways owner, International Consolidated Airlines Group shares have slipped lower this morning after cutting back its capacity and profit forecasts for the next three years. Despite the high-profile failure of Thomas Cook it would that the airline sector still has some way to in terms of dealing with over capacity. The company lowered its earnings per share growth forecast from 12% to 10% though it did keep its operating margins unchanged at 12 to 15%.
US markets are expected to take a pause after some decent gains this week, ahead of the weekend, with Disney shares likely to be in focus after the company reported Q4 revenues that rose 8% to $6.7bn, while profits came in at $1.07c a share. The improvements were helped by a decent performance from its theme parks as well as good footfall from its new Toy Story 4 film and the Lion King remake. More importantly this improvement comes before the launch of its new streaming service Disney+ that will be launching this month, alongside Apple’s new TV+, as both companies take the fight to market leader Netflix.
This will be a key period for Netflix, as these two big bruisers, who have unarguably much deeper pockets, look to chip away at its subscriber base.
It wasn’t all good news for Disney as the Hong Kong protests hit its profits there, while higher costs at Orlando and Anaheim on its Galaxy’s Edge ride were a drag on profits as well.