Equities Slide As Trade Deal Buzz Fades

Europe

Stock markets in Europe are in the red as we approach the close. They were given a boost during the week after the US-China trade talks ended on a positive note, but the lack of additional detail in relation to the update has encouraged some dealers to trim their positions ahead of the weekend. In London, oil stocks like BP (LON:BP) and Royal Dutch Shell (LON:RDSa) are weighing on the FTSE 100, due to the correction in the oil market.

AO World (LON:AO) shares are higher today after the group posted an 8.2% jump in revenue. The company confirmed that November was the ‘highest sales month ever’ as Black Friday was a success thanks to promotions. It is no surprise the online only retailer posted good numbers, as that’s the way that consumer trends are going. The firm reiterated its full-year guidance and that has lifted sentiment too. The stock has been broadly moving lower since October, and if the negative move continues it might target 110p.

Grafton Group (LON:GFTU_u) issued an upbeat update as the company said that full-year revenue jumped by 8.7%. The company confirmed it had a ‘good performance’ in the year and predicts that full-year earnings will be above analysts’ expectations – full-year figures will be released next month. In the current environment, there aren’t many companies that are releasing positive updates, so Grafton stands out. The stock has rallied since late December, and if the bullish move continues, it might retest the 792p region.

Flybe (LON:FLYB) shares have nosedived after Virgin Atlantic and Stobart offered to buy the company for £2.2 million – which is far below yesterday’s closing market value of £36 million. The bid is being viewed as a rescue package, seeing as no other firms seem to be interested in acquiring the struggling airline. Virgin and Stobart (LON:STOB) have pledged a bridge loan and an additional investment for Flybe so at this stage it’s just about keeping the lights on.

US

The Dow Jones, S&P 500 and Nasdaq 100 are all a little lower today as the excitement surrounding the US-China trade deal has dwindled. Like their European counterparts, the major US indices had a good week, and they now have handed back some of the gains. Some investors are waiting for new details surrounding the US-China trade deal before making their next play.

Inflation cooled in December as the headline CPI rate on an annual basis dropped from 2.2% to 1.9% - meeting forecasts. Given the sharp fall in energy prices in between early October and mid-December, it isn’t surprising that CPI declined. The core CPI reading held steady at 2.2%, and that suggests demand is still firm, which bodes well for the economy.

Last month, the Federal Reserve expressed concerns that inflation might fall, and now we are seeing signs of that, and if the trend continues, it makes future rate hikes less likely.

General Motors (NYSE:GM) shares are in demand this afternoon after the company said its full-year 2018 earnings forecast would be above the previous forecast, and the group issued a bullish 2019 outlook, that was higher than analysts’ forecasts. The company announced major losses in November, and today the auto maker said it anticipates to make $6 billion in savings by the end of 2020. The stock gapped higher today, and if the bullish move continues it might target the $40 region.

FX

GBP/USD had a volatile session after it was reported that Brexit will be delayed beyond March 29, and shortly after, a spokesperson for the Prime Minister denied the report. Sterling has still managed to hang onto much of its gains. The pound has traded above the late December highs, and if it can hold above that level, it might retest the 1.3000 area. UK industrial production and manufacturing production in November were -0.4% and -0.3% respectively – both missed forecasts.

EUR/USD in the red due to the strength of the greenback. Italian industrial production dropped by 1.6% in November. Earlier this week we saw that French and German and industrial production also dropped. It is worrying that the three largest economies of the eurozone all saw industrial production fall.

Commodities

Gold is still higher despite the turnaround in the US dollar. The commodity has had a strong inverse relationship with the US dollar in recent months, and that relationship is playing out today. The metal has run out of steam close to the $1,300 mark, and should the metric be cleared, it might target the $1,326 region.

Oil has dipped today as traders booked their profit on a positive week. The energy has fallen in tandem with equity markets as some dealers are playing the wait-and-see game in relation to the US-China trade story.

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