Strong results boost Wall Street only temporarily
As Wall Street works its way through about 150 earnings releases this week the overall picture emerging is still one of flourishing demand and a strong economy confirmed by the likes of Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT) which is now on its way to reach a market cap of $1 trillion.
Yet nerves remain fragile after the sharp stock market losses in the last few weeks with every imperfect tealeaf read as a harbinger of doom. US futures are already indicating a lower start to the day based on Amazon’s results late Thursday. It is not that the company reported a decrease in income – on the contrary, profits were at a record high – but its sales nudged lower and more importantly its expectations for the all-important fourth quarter holiday shopping period came in a touch below consensus forecasts.
IAG (LON:ICAG) balances out higher fuel costs with higher ticket prices
Surprising with good results in a sector that has been struggling this year British Airways’ parent company IAG reported an 11% increase in net profits and went on to lead the FTSE risers as its shares jumped 2.32% higher.
An increase in oil prices has hit airlines hard this year as did higher labour costs and budget airlines in particular have been struggling with profits as their margins are too thin to absorb these types of fluctuations. But bigger carriers like IAG are in a better position to handle the headwinds of rising costs not only with higher ticket prices but also hedging their oil exposure, which IAG did, managing to balance out a 13% increase in its fuel expenses.
China’s currency weakens
China’s yuan weakened Friday to the lowest level since the financial crisis as the Sino-US trade dispute started taking its toll against a background of a slight slowdown in the country’s economic growth.
The US has been pointing the finger at China for using its currency to counterbalance the effects of the trade tariff war and has made the strength of the yuan part of official trade tariff discussions, but the decline could have more to do with the overall state of the Chinese economy than be the fault of frictions with the US.
London Heathrow outlook remains cloudy
New routes to China have helped passenger numbers at Heathrow surge to a record, but profit growth has remained elusive. Heathrow had to spend more than usual earlier this year when the Beast from the East pushed up maintenance and other operating costs. Spending on security and the provision of services to disabled passengers have also chipped away at its earnings.
The profit picture could get better for Heathrow if it gets to add a third runway by 2026 as planned. The extra flying capacity would improve the passenger experience, making the airport more competitive, while bringing economy of scale benefits. The outlook for Heathrow, however, remains cloudy. The addition of a third runway is no certainty, with a legal challenge backed by high-profile opponents, including the mayor of London, set to be heard in the High Court in March.
Brexit is also looming as a potential headwind. A no-deal Brexit would clearly be painful for Heathrow, should transport between the UK and EU grind to a halt. But any kind of deal that makes it harder or more expensive for people to cross borders can't be good for business.
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