Originally published by CMC Markets
Europe
After an initially positive start to the day, markets in Europe have slipped back into negative territory on the back of a series of disappointing earnings announcements, and a 23.5% decline in EU new car registrations in September.
The DAX in particular was dragged lower as automakers came under pressure on the back of this sharp decline, while a profit warning from one of its biggest health care providers Fresenius (NYSE:FMS), saw its share slump over 15%. The FTSE MIB also slid back on reports that the EU Commission had rejected Italy’s latest budget submission.
Budget airline Flybe (LON:FLYB) has had an awful year so far and today we’ve seen new record lows in the share price after the airline reported that full year adjusted losses were projected to be bigger than expected. Despite focussing on it’s more profitable routes the turnaround doesn’t appear to be happening fast enough.
The company is taking steps to pare down its fleet, by returning aircraft that are coming to the end of their leases, in an effort to further control costs, and there appears to have been some provision for this, which is expected to see losses widen to £12m. The outlook for the second half of this year is also expected to soften, with the company blaming increases in oil prices along with weakening consumer demand.
It’s not been a great year for ASOS (LON:ASOS) shareholders thus far, but today shares have risen strongly after the company reported full pre-tax profits of £102m, 1.4% above estimates, with revenues coming in at £2.42bn. Management also reiterated full year guidance for sales growth of up to 25% per year, with the shares punching sharply higher on the open.
Having seen Superdry (LON:SDRY) blame the hot summer weather for a slowdown in its sales earlier this week it would appear that ASOS customers don’t appear to have been so affected.
Education publisher Pearson (LON:PSON) also had good news for its shareholders as it reported that it was on track to deliver profits growth, despite the problems in its US education business, with the shares rising on the open.
The latest trading update from Barratt Developments (LON:BDEV) also painted a positive picture for the UK housing market, with the company announcing it has made a strong start to the new fiscal year, with forward sales up 12.4% on the previous year. The company went on to say it intended to grow volumes by 3-5% per year, and said it was confident that it would be able to meet its targets for 2019.
US
US markets have slipped back after yesterday’s big move higher, with European shares acting as a bit of a drag, ahead of the release of the latest Fed minutes which may give some added insight into the thought process of individual Fed members on where they see the so called “neutral rate” and how they all see the US economy. Tech shares are doing slightly better after Netflix’s big beat on its Q3 numbers last night, which saw its shares surge in early trade.
IBM (NYSE:IBM) shares, on the other hand, or old tech slid back after their latest numbers missed on the revenues side, even though they beat on profits. The biggest disappointment was a 6% decline in its AI solutions, while the company also downgraded expectations for the remainder of the year due to a higher tax rate.
Cannabis stocks have also taken a dive today after the Canadian government took the lead in fully legalising marijuana, the first G7 country to do so, with a law which came into effect from today, allowing for the use of marijuana for recreational use. This appears to have prompted big declines in Tilray (NASDAQ:TLRY), Cronos Group (NASDAQ:CRON) and Aurora Cannabis (TO:ACB), as investors look across the gamut of plays in an attempt to weed out the most durable players in the sector.
FX
The US dollar has moved higher ahead of the release of the latest Fed minutes later today, where it is hoped that we’ll get a clearer idea where all Fed policy makers sit in terms of rate path expectations, as well as the health of the US economy. It will also be instructive to see if the normally dovish Lael Brainard has shifted her position, from her comments in early September, on the need for further gradual rate rises, when she speaks later today, given recent market volatility in emerging markets, low inflation, and escalating trade tensions with China.
The pound has come under pressure after the latest inflation numbers showed that headline CPI in September slipped back to its lowest levels this year at 2.4%. While on one level this reaction would appear to remove the urgency around a possible rate rise it also ignores the fact that with wages now running ahead of inflation, a lower level of inflation will actually boost spending power in the longer term, making the need for a rate rise much more likely. In any case, while a Brexit agreement remains out of reach the bank is likely to remain on hold, irrespective of what the inflation numbers are.
The euro has also slipped back on reports that the EU Commission has rejected Italy’s budget proposals, sending Italian 10 year yields back above 3.5%, though this shouldn’t really have come as a surprise.
Commodities
Putting to one side concerns about US and Saudi relations, crude oil prices have come under pressure in recent days over demand side concerns, and rising inventory levels. Last week inventories saw a surprisingly large build of nearly 6m barrels, sending prices to two week lows. While we’ve seen a modest rebound since then, there is a concern amongst oil producers that a further slowdown in the global economy could depress prices even further. Today’s inventory data posted a similarly big build of 6.49m barrels, well above the 2.8m barrels forecast, and this has seen prices slide again with US prices taking out last week’s lows, and falling below $70 a barrel for the first time in several weeks.