The so-so US-China trading relationship continues to weigh on equities. Last week, the trade talks were described as ‘productive’ as well as ‘constructive’, but at the same time, trade negotiators from China cut their US visit short, which is partially why we are seeing stocks in the red across Europe. Trade tensions between the two largest economies in the world are having an impact around the global, and the dreadful manufacturing figures from Germany this morning is a great example of how the problem spills out beyond the US and China.
The DAX is the worst performer in Europe on the back of the manufacturing update. Germany is feeling the pain from the trade dispute, plus it also has the uncertainty of Brexit to contend with. The eurozone is slowing down, so the last thing the currency bloc needs is a no-deal Brexit, which at the moment is a possibility.
Thomas Cook (LON:TCG) is toast, which has sparked demand for Tui (LON:TUIT), Ryanair (LON:RYA), as well as EasyJet (LON:EZJ) shares. The demise of Thomas Cook has encouraged traders to buy into reputable travel companies in addition to airline groups. The travel sector has seen squeezed margins recently, caused by competitive pricing, a weaker consumer climate, plus an increase in so-called staycations. Now that Thomas Cook are out of the picture, it is likely to remove some of the pressure from the companies that are still in operation as fewer competitors should equate to healthier margins.
Kier Group (LON:KIE) were awarded a five-year contract from Yorkshire Water which is worth £750 million, the deal will provide Kier with some much needed cash, plus it includes an option to extend the contract for three years. Today’s news has done little to shake-off the disappointing update from last week, whereby the company swung to a loss on account of incurring exception costs related to asset sales. The company is undergoing a restructuring scheme, which is making progress slowly but surely.
EUR/USD is sharply lower this morning on the back of poor data from the currency bloc. The French flash manufacturing and services data for September was 50.3 and 51.6 respectively, while economists were expecting 51.2 and 53.2 respectively. Germany also revealed poor figures, as the flash manufacturing reading was 41.4, and the services PMI update was 52.5. Both German reports undershot forecasts as well as showing declines on the month. The two largest economies in the world are clearly slowing down, so the prospect of a no-deal Brexit is worrying to mainland Europe, as well as the UK.
We are expecting the Dow Jones to open 65 points lower at 26,870 and we are calling the S&P 500 down 7 points at 2,985.
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