Markets in Europe have started December on the front foot after the latest PMI numbers from China, both private and public surveys reported better than expected economic activity for November.
These appear to be backed up by improvements in the latest European numbers as well with Spain manufacturing activity in November improving to 47.5, France to 51.6 and Germany to 44.1. Italy was the only outlier, slipping slightly to 47.6, however overall the direction of travel does appear to suggest an end of year rebound, and has helped reinforce the early gains seen this morning.
We should still exercise some caution in this recovery in economic activity given that manufacturing still remains weak, and there is some evidence that the latest services data has been softening in recent months. We will get to see whether this weakness in services has continued later this week.
Progress on the trade question still appears as elusive as ever, particular with those comments from the Global Times that a deal is unlikely unless some form of tariff rollback is included.
Investors appear unperturbed by this morning’s actions by China to impose sanctions against a raft of US non-government organisations. These look like a token response, given that if China really wanted to send a message, they would have targeted more high-profile government entities.
The best performers have been the basic resource stocks with Rio Tinto (LON:RIO) and BHP (LON:BHPB) leading the way.
In company news fashion retailer Ted Baker (LON:TED) woes have gone from bad to worse, having warned on profits again in October the shares were already over 70% lower year to date, and we’ve seen further weakness again this morning after management reported that its inventory estimates had been overstated by over £20m, sending the shares to their lowest levels since 2009. The implosion of this brand has been nothing short of spectacular in the last two years, having seen its founder Ray Kelvin depart earlier this year over improper behaviour, the company has lurched from one crisis to another.
In July there was speculation that Kelvin was considering a private equity buyout of the beleaguered firm which did cause a brief rebound in the shares; however, this doesn’t appear to have panned out as of yet. Despite his departure in March, Ray Kelvin still owns 35% of the business and is unlikely to be happy to see the brand he created hit further problems. In light of today’s declines could we see further speculation about a private equity buyout?
Crude oil prices have started the week on the front foot having seen big falls last week ahead of this weeks OPEC meeting on speculation that the cartel could well cut production further, after the Iraqi oil minister said that a further cut in production could be considered later this week. Even allowing for that possibility there also appears to be optimism over the latest China data which could mark the potential for increased demand in the months ahead.
The pound is also holding up fairly well despite latest polls showing that the Labour party has closed the gap on the Conservatives, as both sides indulge in an unedifying spat over last weeks tragic events on London Bridge.
US markets could be on course for new record highs later today, as investors take their cues from the positive starts in Asia and Europe.
On-line Black Friday sales hit a record last week in the US, good news for retailers who have been hit hard by changing consumer habits this week, with retailers likely to be in focus when US markets return to a full days trading after the Thanksgiving break last week.
We also have a host of economic data reports put this week culminating in Friday’s November employment report. A decent number here and the prospect of a Fed rate cut next week, already unlikely is expected to be put back further into 2020.
Dow Jones is expected to open 139 points higher at 28,190
S&P 500 is expected to open 15 points higher at 3,156
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