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Energy Shares Slide After SSE Profits Warning

Published 12/09/2018, 09:02
Updated 03/08/2021, 16:15

Asia markets underwent another difficult session today trading lower on the back of yesterday’s news that China would be requesting permission from the WTO to impose sanctions on the United States for not complying with a 2016 ruling that found in China’s favour with respect to US dumping duties.

On its own this doesn’t change the dynamic with respect to the current trade dispute between the two countries, as all it will do is kick off another front that could well last years, but it is yet another example of the stakes being ramped up as markets gear up for the start of the next round of tariff announcements from the US on $200bn of Chinese goods.

Rising oil prices aren’t helping sentiment either as the hurricane season in the US steps up a gear with Florence due to make landfall on the US mainland in the next few hours. Against a backdrop of slowing economic activity and trade war concerns, the last thing the world economy needs is an oil price that is closing in on the $80 a barrel mark, as concerns rise that too high a price could destroy demand.

Markets in Europe, which had a mixed session yesterday have opened modestly higher, taking their cues from a rebound in US markets last night, which saw the NYSE Fang index post its best day in over a week.

The retail sector is set to come under further scrutiny this morning after high street bellwether Inditex (MC:ITX)(LON:0QWI) (LON:0QWI), and owner of the Zara and Massimo Dutti retail brand saw sales come in slightly below expectations for the first half of this year at €12.03bn, though they were still 3% higher than the same period last year. On line sales also performed well with new on line stores launched in Australia and New Zealand in March this year.

Management were also optimistic about the rest of the year projecting 4-6% sales growth in the second half of the year, however they have been curiously silent in today’s update about current Q3 trading activity, which has prompted a number of questions as to whether Q3 has got off to a tricky start.

Earlier this year Dunelm Group (LON:DNLM) issued a profits warning as a decline in footfall saw management report that group sales fell 1.4% in its latest quarter, led by a 4.6% fall in store sales. While most of this was offset by a big jump in on-line sales it nonetheless raised concerns about the sustainability of margins across the entire business, as retailers in general continue to struggle in a challenging business environment. Today’s full year update didn’t paint a darker picture with pre-tax profits coming in at £102m, a fall of 7% from last year, but in line with expectations, while like for like sales rose 4.2%, a silver lining for shareholders that has seen the shares rise on the open.

In the luxury sector Hermes posted a 17% rise in profits for the first half of the year, led by decent growth in Asia, particularly China, as well as the US. Its home markets also performed well with France showing an increase of 8%.

In the energy sector Scottish and Southern (LON:SSE) shares have taken a battering after the company warned that profits would come in well below expectations, as the hot summer weather and higher gas prices hit margins and consumption. Profits for the first half of this year are expected to come in 50% lower than expected.

Coming on top of the recent energy price caps announced by Ofgem the whole sector has sold off as investors project similar sharp falls for its peers with Centrica (LON:CNA), Severn Trent (LON:SVT) and EOn shares all showing sharp falls.

Last night’s positive US finish was led by Apple shares (NASDAQ:AAPL) which saw their first daily gain in 5 days ahead of today’s annual product release event, which is set to unveil a raft of new upgrades to the iPhone range. This unveiling which I have written about in more detail could well signal a reassessment of Apple’s ability to keep improving and updating its products, while also looking to convince its fans to keep paying ever higher prices.

After all, if you’ve just shelled out over £1k for an iPhone X, are you really going to pay out even more for an iPhone XS with a bigger screen? The big question is where is the next killer product coming from at a time when iPhone sales appear to be peaking?

The US dollar is on the front foot again today, while the pound is lagging as political uncertainty around a possible leadership challenge to UK Prime Minister Theresa May is once again dominating the front pages.

Dow Jones is expected to open 50 points higher at 26,021

S&P500 is expected to open 3 points higher at 2,891

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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