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Calm Post U.S.-China Trade Deal; Pearson Plunges

Published 16/01/2020, 10:39
Updated 03/08/2021, 16:15

The long-awaited interim trade deal between the US and China was signed yesterday and now it seems that traders don’t know what to do with themselves. The trade story dragged on for more than 18 months. The economic tussle injected major volatility into the markets, but now the dust has settled, and the mood has dampened down. Now that phase one of the agreement has been made official, people are talking about the second-phase, but Mr Trump might keep that up his sleeve for the presidential campaign.

Pearson (LON:PSON) shares have slumped to a level last seen in 2009 after the company said that full-year operating profit would be roughly £590 million, which would undershot expectations. A poor performance at the group’s US higher education division was cited for the disappointing update. The American unit accounts for nearly 25% of group and the division saw revenue slide by more than 11%. Keep in mind the company issued a profit warning in September, so today’s update feels like a continuation of that story. Looking ahead to 2020, the firm anticipates to post adjusted operating profit of £500-£580 million. It was also announced that Coram Williams (NYSE:WMB), the CFO, will be replaced by Sally Johnson – who works closely with Mr Williams.

Whitbread (LON:WTB) shares are in the red this morning after the group revealed a 1.3% fall in like-for-like (LFL) UK third-quarter sales. Total UK sales edged by up 0.3%, but the LFL reading gives a better picture of the situation. Losses at the German operation are expected to improve to roughly £10 million next year as the pipeline accelerates and around 20 hotels are opened’. The firm predicts that full-year figures for 2020 will be in line with expectations, but looking ahead to 2021, Whitbread are factoring in a ‘cautious approach to hotel demand’.

N Brown (LON:BWNG) issued a profit warning and the retailer blamed a ‘highly promotional market’ for the update. A mixture of online shopping plus a dip in consumer confidence has prompted consumers to become savvier, hence why the likes of N Brown are cutting prices to attract shoppers. A race to the bottom in terms of prices is great for consumers but it clearly bad for shareholders. On a more optimistic note, the CEO, Steve Johnson, claimed the company is making good progress with the ‘ongoing strategic review’. The stock fell to a three month low.

Associated British Foods PLC (LON:ABF) revealed a solid trading update as Primark as well as the sugar business saw increases in revenue. In the 16 weeks until early January, Primark saw a 4.5% rise in revenue when compared with the period last year. The sugar business has traditionally held the group back, but the division saw revenue increase by 7%.

GBP/USD and EUR/USD haven’t moved much this morning as a lack of major economic announcements has brought about low volatility.

Morgan Stanley (NYSE:MS) will announce its fourth-quarter figures today. Dealers will be keeping an eye on the banks trading operation seeing as the likes of JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) produced well received figures this earnings season. In the third-quarter, Morgan Stanley posted an impressive jump in bond trading revenue, but net interest income slipped, and that pattern could be continued today.

We are expecting the Dow Jones to open 105 points higher at 29,135 and we are calling the S&P 500 up 12 point at 3,301.

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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