Having slipped back yesterday over concerns that the latest snag in US, China trade talks would delay any potential phase one deal, markets in Asia have rebounded after comments from Larry Kudlow, President Trump’s chief economic adviser that the talks, to use a golfing analogy, were “down to the short strokes”. If that’s the case then most people in the markets will be hoping that both parties can put the ball in the cup, because the constant prevarication about whether we’ll see a phase one deal by year end is becoming tiresome.
This has translated into a stronger European open this morning with the main focus on the Telecoms sector after the Labour Party’s big broadband announcement last night. The pledge to partly renationalise BT Group’s Openreach division has seen the shares, along with the rest of the sector come into focus this morning, with the shares slipping back in early trade.
The latest electoral wheeze from Labour has seen them pledge to deliver free broadband to every home free of charge by 2030. To do this they intend to nationalise BT’s Openreach network and have pledged the sum of £20bn to do so.
Putting to one side the costs of doing so, which will always be disputed whichever side you talk to, BT has put the cost much higher, this appears to be yet another eye-catching pledge by a political party to buy off voters with a so called free benefit, which while may be free at the point of delivery, usually ends up with higher taxes across the board.
Another major downside is that broadband is rapidly becoming old technology with the advance of 4G as well as 5G, and as such any subsequent government would end up spending billions of pounds on updating and maintaining outdated technology, assuming that they even have the capacity to do so. This is why governments should not be running businesses.
BT Group PLC (LON:BT) expressed surprise at last night’s announcement having been assured by Labour fairly recently that they weren’t being considered as a nationalisation candidate. With other companies also being told the same thing by the Labour Party, investors will no doubt be looking very carefully at other possible candidates for nationalisation, and whether they need to be concerned.
Companies like Royal Bank of Scotland (LON:RBS), National Grid (LON:NG), Centrica (LON:CNA), Severn Trent (LON:SVT), Royal Mail (LON:RMG) as well as the rail company franchisees, like Go-Ahead Group (LON:GOG) and National Express (LON:NEX) to name but a few, are already trading at a nationalisation discount.
For now, given Labour’s current polling numbers the concern is fairly minimal, and investors will be hoping it stays that way, which helps explain the fairly muted share price reaction.
A side effect of last night’s announcement by Labour has been the delay to the sale of TalkTalk's (LON:TALK) ultrafast broadband network to CityFibre Holdings until after the general election next month.
This morning TalkTalk also released its latest first half numbers, reporting operating profit of £29m, on revenues of £792m. In terms of new customers the company added 174k in fibre across consumer and B2B. The company also kept its full year outlook unchanged.
US markets closed near record levels last night and look set to continue that progress later today with new record highs after those Kudlow comments overnight. We also have the latest retail sales data for October, which is expected to show a gain of 0.4%.
Dow Jones is expected to open 60 points higher at 27,842
S&P 500 is expected to open 8 points higher at 3,104
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