Uncertainty remains the main feature of European markets with Brexit and the Italian budget high on the list of concerns. The FTSE, DAX and the CAC are all trading lower and US futures are showing signs of weakness.
While the pound had a chance to recover a notch this is not necessarily good news for London stocks and although the news flow from Brussels about Brexit is turning slightly more positive UK blue-chip shares are still on the decline.
Setting the scene for the next chapter of Italy’s drama
Italy and the EU are set for a clash next week when the country submits its proposed budget to the European Commission with trenches being dug on both sides. Italian politicians on the right-wing and anti-establishment end of the governing coalition are repeatedly saying they have no intention to back down on plans for high spending next year, disregarding the tumbling stock markets and spiralling bond yields. Given that the country’s debt remains at an eye-wateringly high 130% of GDP the EC is likely to reject Italy’s budget proposal and open a procedure against the country’s public accounts. The Commission has to make an official decision before the end of November, until then volatility will remain a key feature of Italian markets.
Oil prices in between a real and metaphorical storm
Oil prices have stabilised for the moment – in between a real and a metaphorical storm. Hurricane Michael is powering ahead toward the Gulf of Mexico but it now seems likely to miss the main production areas there. On the other hand, Iran sanctions are only weeks away but there are signs that the US may allow waivers for certain countries which will allow for oil to continue to flow into Western markets.
Brent is trading at £84.7, off recent peaks but still at much higher levels compared with only a month ago. The three-figure oil price being called by some market participants may be slightly far-fetched but the storms need to blow over for any clarity on that.
Prevailing tough conditions in the UK auto market weigh on Vertu Motors’ profit performance
Vertu Motors (LON:VTU) has slammed the breaks on dividend increases as prevailing tough conditions in the UK auto market weigh on its profit performance. Sales volumes have held up well but margins are being hurt by the weaker pound, which is pushing up prices for car manufacturers.
The introduction of the new WLTP emissions-testing regulations are also creating supply disruptions as manufacturers seek available testing capacity. Add the fact that consumer confidence remains fragile and it's no wonder that Vertu is feeling the pinch. The aftersales market has emerged as a haven for dealers as car owners hold onto their existing vehicles for longer. But competition in this space is intensifying, forcing the likes of Vertu to hike salaries for mechanics and further squeezing its margins.
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