Europe
European equity markets have ended the month with a whimper but it’s still been a decent month, as well as a good start to the year for the FTSE and the German DAX, despite all of the political concerns that have dominated sentiment, though the performance of the CAC40 has been disappointing so far this year.
The big question now having seen a fairly benign start to the year despite all the political uncertainty is whether the equity market rally succumbs to the market equivalent of the Ides of March and a sharp downward lurch if tonight’s speech by US President Donald Trump disappoints on the substance of this weeks earlier rhetoric.
Amongst the better performers we’ve seen engineering company GKN (LON:GKN) report that profits came in ahead of expectations, rising 12% beating expectations, while management said the company was well positioned to benefit from its exposure to the US economy.
Engineering services group Babcock is doing well after a positive quarterly update to investors outlining the strength of its order book and pipeline.
Defence contractors have also performed well, Meggitt (LON:MGGT) surprising the markets by raising its dividend despite reporting a drop in full year profits. Its exposure to the oil and gas market has been a drag, however its defence division could well benefit from the proposed increase to US defence spending in the coming years. BAE Systems (LON:BAES) is also gaining ground for the same reason, trading at new record highs.
On the downside mining stocks which have been among the biggest gainers in the current Trump bump have taken a little bit of a pause, ahead of tonight’s speech by US President Trump, with Rio Tinto (LON:RIO), BHP and Randgold Resources (LON:RRS) all lower.
US
US markets opened lower after the latest US Q4 GDP revision came in unchanged at 1.9% missing expectations of a 2.1% upward revision. While personal consumption rose, business investment disappointed, while core PCE over the fourth quarter slipped back to 1.2%, suggesting that upward price pressure remains subdued.
We also saw a big jump in the January trade deficit as it jumped sharply to -$69.2bn, up from -$64.4bn in December.
Offsetting that we saw the latest February Chicago PMI numbers rebound from their January slump, coming in at 57.4, with new orders prices paid and employment components all rising.
On the earnings front US retailer Target, has slid back sharply after missing expectations on both revenues and profits, with profits coming in at $1.45c a share below the $1.51c consensus. More worryingly the company revised its outlook down for 2017 quite sharply. It would appear that like most retailers Target is being hurt by lower footfall at the expense of higher digital sales.
With other US retailers embarking on store closure plans it surely can’t be too long before we see similar plans outlined here as well.
Auto parts retailer Autozone, the US equivalent to Halfords here in the UK also disappointed on the results front with revenues missing estimates while profits missed expectations of $8.19c a share.
FX
It’s been a mixed bag of a day for the US dollar after the latest revision of US Q4 GDP and core PCE prices came in weaker than expected, and prompted a slight softening of yields.
This in turn has prompted a firming up of the Japanese yen and Swiss franc despite rising speculation that a March US rate rise may well be a more even bet than first thought.
The pound has continued to remain on the soft side despite the reluctance of the US dollar to build on its recent gains; however it still seems to be finding buyers in and around the $1.2400 area.
Commodities
Oil prices have once again failed to move beyond their recent range highs, slipping back after it was reported that non OPEC members were lagging behind on their output cuts, while Iranian oil minister Zanganeh ruled out the prospect of extending the deal into the second half of 2016.
It has been reported that the latest February OPEC output numbers may have seen a 55k rise to around 32.24m barrels per day, which would appear to suggest that support for the output cap appears to be slipping away.
With US stockpiles still at record levels and rig counts on the rise it is becoming increasingly difficult to see how oil prices can continue at their current levels without a significant shake out.
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