Global stocks decline as anxiety mounts
European stock markets took their cue from the heavy selloffs in the US and Asia to open lower Thursday as bigger picture concerns about the US economy reasserted themselves.
Fast rising interest rates and the first signals of a slowing economy combined with a potentially protracted trade conflict with China and increased regulation constricting the high flying FANG stocks took their toll on US shares. The positive momentum seen in the DJIA only a few weeks ago seems to have completely evaporated as the index dropped more than 600 points on the day.
Over the last few trading sessions the Dow and the S&P 500 declined so sharply that all of their gains for this year have been erased.
Mario Draghi’s unenviable position
ECB President Mario Draghi will be in an interesting position later today when he is due to hold a news conference following the meeting of the bank’s monetary policy makers. The former Bank of Italy governor who was a proponent of Italy following the EU’s fiscal rules is likely to face questions about his country’s budget plans for next year which are in clear breach of those same rules.
The European Commission has already slapped Italy’s lawmakers’ wrists asking for a rewrite of the budget in the next three weeks. The markets will be keen to hear if the ECB may use any purchases to prop up Italy’s failing bond market and about any plans to ensure sufficient liquidity for Italy’s banks.
Oil drops despite looming Iran sanctions
Brent crude dipped to just under $76 despite looming Iran sanctions as a selloff in US and Asian stocks triggered concerns about a corresponding decline in oil demand. Although part of the decrease from the heady level of $86 earlier this month was triggered by Saudi Arabia indicating that it would raise production should the sanctions start causing any supply deficit for Western buyers, fear and anxiety about the global economy are currently playing a bigger role in the oil price than the actual fundamentals of supply and demand.
Debenhams’ restructure an attempt to press re-set button
Like Mothercare and Carpetright before it, Debenhams (LON:DEB) is trying to press the re-set button by dramatically shrinking its store footprint. Optimists will style the move as a reboot of a strong and trusted brand, but it looks more like a bout of emergency surgery on a business on the brink.
At its last trading update, Debenhams talked about a possible rebound in profit performance but that hasn't materialised. Like-for-like sales and margins have both continued to slide while cautious consumers flock to online retailers or shop at physical stores with more appeal. To survive on today's high street, it helps to be fast a ‘la Zara, cheap a ‘la Primark or original a ‘la Ted Baker (LON:TED). Debenhams is none of those things at the moment.
Debenhams may well get through this restructure and emerge in five years' time as a leaner, meaner, more attractive and more innovative retailer. But getting their will be far from easy. Management will somehow have to successfully release enough capital to improve the business, while at the same time slashing costs and covering what could be thousands of staff redundancy payouts.
RDI REIT on more stable footing
RDI REIT is on a more stable footing these days, having shrunk its exposure to the struggling retail sector in both Germany and the UK. Earnings growth has been driven by some positive revaluations and an unexciting but solid 2.1% improvement in rental income.
Risks remain, especially in a hotel sector that is seeing a large increase in the supply of rooms as the likes of Premier Inn and Intercontinental battle for market share. RDI has also dipped its toes into the emerging flexible office market, which hasn't yet developed a strong track record of measurable performance, but nevertheless holds promise. The market is still clearly concerned about risks inherent in RDI REIT's portfolio, given the stock is yielding 8.3%. But with the dividend fully covered, debt levels falling and the asset mix improving, a bet on the company's stock is looking a lot more enticing.
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