European markets have opened higher this morning despite another weaker finish in the US. There has been a number of conflicting narratives with respect to whether we get an extension to the 15 December deadline on China tariffs, however there does appear to be some money taking a view that the risks to the US not extending the deadline, outweigh the risks of not doing so, and thus the deadline is likely to be extended.

There is still no expectation that we’ll see any agreement on a phase one trade deal any time soon, however on the plus side there does appear to be progress on the USMCA agreement with the prospect still open that it might get passed by year end.

There’s been little in the way of good cheer for retailers in general this year, however it’s not all doom and gloom, and Zara owner Inditex has been one of the few players in this space that has managed to cope with the changes to the retail environment. With the shares up over 25% year to date its latest numbers have showed that earnings for the 9-month period rose by 7%, a significant improvement from a year ago coming in at €19.8bn vs €18.4bn a year ago. This helped push profits up by 8% to €11.5bn. The company also said it expects like for like sales to rise by 4-6% in 2019, while gross margins also improved by 21bps to 58 2%.

JD Sports shares have plunged this morning on reports that top shareholder Pentland has cut its stake in the company, selling 24m shares at a price of 740p. Despite the sale Pentland still remains a majority shareholder in the business owning 55% of the share capital, and the shares are still up over 100% year to date, which doesn’t seem too bad a return. 

Transport provider Stagecoach group, the company that provides the bulk of the UK’s bus services, this morning reported its latest half-year results. Revenues came in at £800m and operating profits of £79.6m, considerably below last year’s numbers, though this can be explained by the loss of some key rail franchises in the last 12 months. Profits on its London Bus operations are ahead of expectations, while regional bus revenues are also recovering. The company also announced a number of board changes.

Chairman Brian Souter will be stepping down to be replaced Ray O’Toole, as the company takes a step back to assess any lessons in the context of why the company was excluded from renewing its bids for the East Midlands and West Coast rail franchises.

AA shares have surged on the open after the company reported that it expected its full year results to be in line with market expectations. Earlier this year the company issued a profits warning after profits fell by 60% and the dividend was cut. This morning’s rebound appears to be predicated on the basis, that having had a torrid year, and the shares being down over 30% year to date, that the outlook appears to be stabilising.

In another sign that negative rates are taking their toll on the banking sector, Swiss bank Credit Suisse this morning reported that it was cutting its profitability target for this year, after reporting a loss in its M&A division, while revenues in investment banking and capital markets has continued to slow. The bank, which has been embroiled in a well-publicised spat with a former employee, Iqbal Khan, has been focusing more on its wealth management division to generate future profits over the past few years, and while this has reaped dividends the bank has also found itself forced to start charging customers for holding large amounts of cash with it.

This should be a concern to all of those in European banking sector, given that Credit Suisse is one of the few banks in the region that recognised early on that they needed to change their business model in light of the new interest rate environment. If Credit Suisse is struggling what does that say about the rest of the sector, and especially those who aren’t as well advanced down the restructuring route. We’re looking at you Deutsche Bank.

The pound slipped back in Asia trading on a the latest YouGov poll which showed that a Conservative majority might well be lower than was the case two weeks ago when the same poll gave them a much bigger lead. The outcome remains still close to call with the prospect of another hung parliament still a real possibility, as we look towards the opening of the polls tomorrow. With the weather forecast looking absolutely lousy for tomorrow, with widespread torrential rain, turnout could also be a factor in the result.

It’s all eyes on the Federal Reserve later today with no expectation that US policymakers will make any changes to monetary policy. The focus will be on the statement, and US policymakers’ views on the health of the US economy. Given that this meeting comes in the aftermath of a bumper non-farm payrolls report, there is likely to be widespread unanimity on how the US economy is doing. This could result in a hawkish interpretation to the statement, while investors will also be looking to parse Jay Powell’s press conference for any concern that policymakers have any underlying concerns with respect to the US economy in 2020.

The latest US CPI numbers are expected to show that price pressures remain fairly subdued with core CPI expected to remain steady at 2.3%, while the headline number is expected to nudge higher from 1.8% to 2%.


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