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FTSE Lower As Tensions Build; Euro Slips; Oil Steady

Published 23/10/2018, 11:58
Updated 14/12/2017, 10:25

The London index is trading lower despite a flurry of company news, with many reporting good growth and higher income. But with Brexit uncertainties in the background, the EU heading for conflict with Italy over its budget and US and Asian stocks falling, investors have greeted even good results with scepticism.

Whitbread (LON:WTB) shares were hit even though the company reported a slight increase in profit and progress on its Costa Coffee sale. Similarly, Anglo American (LON:AAL) reported strong third quarter sales but shares decline by 2.2%.

The market is reading the tea leaves ahead of the UK budget next Monday, now expecting that the UK Chancellor may not have to increase taxes to fulfill a government promise to fund the NHS. A revision of the UK deficit is showing a lower-then-expected hole in the country’s finances which would allow the Chancellor to avoid unpopular tax increases. At the same time the UK Brexit Minister is talking to businesses to make them ready for a hard no-deal Brexit. Sterling is performing a precarious balancing act against the dollar and the euro, following a drop to a two week low yesterday.

Euro slips, oil steady

The red in the stock market indices was replicated across Europe with the DAX particularly hard hit in the wake of Germany’s producer price index data. The euro slipped against the yen and the dollar.

Oil prices have stabilised for the moment as the US and Saudi seem to have decided to walk away from a budding dispute over dissident Saudi journalist Jamal Khashoggi but Turkey is unlikely to let the issue lie, given that the journalist was killed in Istanbul. Turkey’s President Erdogan is planning a detailed speech on Tuesday that could stir the issue anew.

US corporate calendar overflow

The floodgates are about open for US corporate earnings as some 150 companies are due to report before the end of the week including Caterpillar and McDonald’s (NYSE:MCD) on Tuesday. Many are pegged to report good earnings, boosting hopes that the market will find new impetus to shake off the recent bond-induced gloom.

Whitbread’s results not as strong as expected

For a company that has put all of its eggs in the hotel chain basket, these results aren't as strong as the market would have hoped and management's outlook statement is markedly cautious. To be sure, Whitbread has managed to eke out some small like-for-like sales growth at Premier Inn and the Costa sale has provided it with plenty of powder to invest in a strategy that still looks sound.

Although the traditional hotel sector is under assault from new digital arrivals like Airbnb, it still has room to grow. Smaller bed and breakfasts are struggling to compete, giving Premier Inn scope to flex its scale advantage and offer lower prices to win market share. The move to create a new no-frills hotel, offering rooms at £19 a night, could also woo travelers on a budget once accustomed to finding bargains on Airbnb. There's also plenty of room for Premier Inn to expand in Germany, where budget hotel chains still make up a relatively small portion of the market.

Bloomsbury’s sales gain momentum in the lead up to Christmas period

Bloomsbury is showing signs that it's building solid sales momentum in the lead up to the crucial Christmas trading period. The company's past success has largely been driven by the popularity of consumer titles, such as the Harry Potter books. But the non-consumer division has notched a pleasing performance in the first half, even with the academic year yet to get into full swing.

The new deal announced today with the Institute of Chartered Accounts adds a welcome string to Bloomsbury's bow. The Harry Potter franchise, meanwhile, doesn't appear to be getting old and tired yet, with fresh installments like 'The Tales of Beedle the Bard' keeping sales firing. Still to come is celebrity chef Tom Kerridge's new book, which is being backed by a new BBC series and will land just in time for Christmas.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."

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