Europe
European markets have enjoyed a rather mixed day helped by continued strength in financials and banks as the prospect of rising yields and steepening yield curve differentials help boost optimism that the yield compression problems of a year ago are behind them.
The DAX has continued to push higher, after breaking out earlier this week hitting its best levels since April 2015, however the CAC40 has lagged behind.
It’s been another busy day for trading updates and results and in amongst the deluge they’ve been somewhat of a mixed bag.
Premier Inn and Costa Coffee owner Whitbread (LON:WTB) is amongst the biggest fallers after reporting an 8.6% rise in total sales in Q3, with the Costa Coffee side of the business showing a significant improvement. On the Premier Inn side of the business, the expansion program is making good progress but a decline in London revenues appears to be driving the current share price moves.
Having been in the news for all the wrong reasons at the end of last year after getting involved in a pricing spat with Tesco (LON:TSCO), after attempting to raise some of its prices by 20%, Unilever (LON:ULVR) posted its full year numbers for 2016 today and these were notable for underperformance in its Indian and Brazilian markets, as currency effects reduced its overall turnover.
On the plus side drinks giant Diageo (LON:DGE) is on the up after reporting a rise in profits of 28% in the first half of this year. The company also raised its interim dividend by 5%, with the US market doing particularly well. The weaker pound has also had a positive effect boosting profits by over £400m.
The extra provision of £3.1bn by Royal Bank of Scotland (LON:RBS) in respect of further US fines for mortgage backed securities has seen the share price push higher, and while this is unlikely to be the last time the bank has to do this, it does afford them a much bigger buffer when they do arrive at a settlement with the US Department of Justice, having seen their European peers Deutsche Bank (DE:DBKGn) and Credit Suisse (SIX:CSGN) already settle.
Industrial equipment hire company Ashtead (LON:AHT), which saw strong gains yesterday has continued to rise on the back of US President Donald Trump’s recent executive orders to build the Keystone XL pipeline and the Mexican Wall.
US
After yesterday’s record breaking session US markets opened in a somewhat mixed manner today with company earnings taking centre stage as weekly jobless claims surprisingly jumped to 259k from last week’s 237k. Despite this we’ve still managed to put in new record highs on both the Dow and S&P500.
The US trade deficit for December didn’t show much of an improvement coming in at -$65bn, while the latest services PMI for January showed an improvement to 55.1, from 53.9 in December.
On the earnings front industrial equipment supplier Caterpillar, whose share price has shot up in the last day or so on the back of optimism about being a beneficiary of new US President Donald Trump’s fiscal plans, issued a disappointing trading update.
While it showed a beat on its Q4 earnings of $0.83c a share, above the $0.66c expected, its outlook for the coming was rather disappointing, as management cited a stronger US dollar as a headwind.
It would appear that while investors are optimistic about the future of companies like Caterpillar in the Donald Trump era, the management appears less so. Maybe senior management are adopting a policy of being conservative now and over delivering later?
Ford Motor Company (NYSE:F) has seen its share price slide back despite meeting expectations on profits and beating expectations on revenue. The overall numbers were affected by $200m hit as a result of costs related to cancelling a car plant in Mexico, while it also lowered its outlook for 2017.
In M&A activity Johnson and Johnson has announced plans to acquire Swiss biotech giant Actelion for $30bn.
FX
The US dollar has enjoyed a bit of a rebound after hitting eight week lows against a basket of currencies, with the Japanese yen amongst the bigger losers today, as yield differentials widen out in the US dollars favour.
The pound has slipped back a touch after the latest Q4 GDP numbers which came in slightly ahead of expectations at 0.6%, with services the key driver in terms of the outperformance, rising 0.8%, while construction also posted a mild expansion of 0.1%. As we head into 2017 an improvement in manufacturing and construction is needed to offset any possible slowdown in the services sector, which has thus far done most of the heavy lifting.
This reliance on services is likely to be tested in 2017 in the face of rising prices if today’s latest look at retail sales is any guide. The latest CBI retail sales numbers for January, were expected to post a slowdown from the decent numbers seen in the previous three months, however the decline to -8 from 35 was a little unexpected.
This might suggest that higher prices are now starting to have an effect at the sharp end of consumer spending as shoppers look to pay down debt in the aftermath of Christmas.
Commodities
We’ve seen a decent gain in oil prices despite rising inventories from both API and EIA data this week, as prices defy the prospect that rising US output will more than likely outweigh the lower OPEC output.
Higher bond yields, and today’s stronger US dollar are weighing on gold prices with the yellow metal hitting a two week low, as the US dollar enjoys one of its better days.
"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. "