Canada deal lifts markets
European markets were infused with fresh optimism after Canada and the US reached a landmark trade agreement that will form part of a new and revamped NAFTA deal with Mexico. US futures are powering higher and the S&P 500 looks as if it could head for new record highs later in the day.
The Canada/US deal comes after numerous stops and starts and although it is too soon to conclude that the USA’s other trade disputes will come to a quick resolution the deal provides hope that trade tensions may start easing.
Airline shares drop as Ryanair cuts guidance
Airlines were one of the few sectors not to benefit from the NAFTA deal as cut earnings guidance from Irish budget airline Ryanair highlighted the problems faced by the industry. Unlike other airlines Ryanair (LON:RYA) has collided with the German pilot and crew unions and had to cancel hundreds of flights. However, when this is stripped away the Irish carrier faces the same problems as the rest of the industry – higher oil prices, increased staff costs and fierce competition causing lower ticket prices.
Since the beginning of the year Ryanair has spent an additional €480 million on fuel because of rising oil prices. It also cut its ticket prices by 3%, similar to peer EasyJet (LON:EZJ) which has been benefiting from Ryanair’s cancelled flights. Ryanair’s shares dropped 8% in early trade.
Conservative party conference and Brexit
Expect a steady flow of news about Brexit this week, as the Conservative Party conference has started in Birmingham. Beset by deep divisions over Brexit it is an open questions if the party will survive in its current form until the end of this week or whether a number of MPs go ahead with plans to challenge PM Theresa May. For the time being the pound is holding steady against both the euro and the dollar but a PM challenge would cause significant volatility with the direction determined by Brexit views of May’s challenger.
In an attempt to reassure the country and the markets Chancellor Philip Hammond said that the UK has the fiscal capacity to cope with leaving the European Union without having first secured a deal. A separate survey by the Confederation of British Industry showed that the optimism in the UK financial sector fell in the third quarter to negative 30% indicating that Hammond may have to provide a little more than pat reassurances.
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