Continued cautious optimism in relation to the US-China trade situation has lifted European stocks. Yesterday we heard from President Trump that negotiations were ‘moving right along’. We have heard this sort of language before, so Mr Trump is running the risk of becoming the boy who cried wolf. The positive sentiment is being capped by the fact that Mr Trump earlier this week claimed the trade deal might not be singed off until after the presidential election next year.
The US non-farm payrolls report will be posted at 1.30pm (UK time). The headline reading is expected to 180,000, which would be a big improvement from the 128,000 registered in October. The jobless rate is tipped to be 3.6%, while the average earnings rate is expected to hold steady at 3%. The unemployment rate is near a fifty year low, so it is clear the jobs market is in rude health. The earnings component will be closely watched, as workers who earn more tend to spend more.
Berkeley Group shares have had a muted reaction to the largely disappointing first-half figures. Pre-tax profit dropped by 31%, while revenue fell by over 43%. Falling house prices as well as lower house sales were behind the drop in both metrics. Average selling prices slid by nearly 12%, while the number of houses sold declined by over 30%. The saving grace from the update was that the medium term profit guidance was maintained. The group is still on track to post £3.3 billion profit by 2025. Gross margin jumped to 36.1% from 29.2% - this helped sentiment too. The stock hit a record-high late last month, and this stock isn’t too far from that level at the moment – which seems odd given that first-half earnings took a major knock.
Associated British Food maintained its forecast for earnings growth. The share price is slightly higher on the back of the optimistic trading update. The Primark division is expected to undergo a small reduction in margin on account of the weakness in sterling, but that should be offset somewhat by lower costs. The clothing operation will expand its floor space, especially in Spain and France. It says a lot about Primark that it is growing at a time when the high street is contracting. Squeezed middle-income earners are hunting out bargains at the likes of Primark, and that is why the business is holding up well in a fragile consumer environment.
The Competition and Markets Authority expressed concerns that Stonegate’s proposed takeover of Ei Group might bring about a ‘lessening of competition’ in the market. The planned acquisition will now be referred to phase two of the investigation process.
EUR/USD hasn’t moved much today. It has been a disappointing morning for eurozone data, but traders are not fazed. German industrial production on a monthly basis fell by 1.7% in October. Italian retail sales fell by 0.2% in October. The update highlights the weak demand in the currency area.
GBP/USD is lower as traders bank some of their profits on sterling’s recent rally. The Conservative party are still tipped to win next week’s election, hence why the pound is comfortably above the 1.3000 mark against the greenback.
We are expecting the Dow Jones to open 53 points higher at 27,730 and we are calling the S&P 500 up 7 points at 3,124.
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