Europe
Stocks have struggled for direction today with a slightly weaker bias across the board as a lack of positive drivers has weighed on sentiment. It would appear that while political risk has subsidised investors remain far from convinced that further upside can be sustained without further evidence of a positive pickup in the economic numbers.
It’s not been a great week for the Telecoms sector as BT Group (LON:BT) followed in TalkTalk (LON:TALK)’s footsteps by disappointing the markets with its end of year update, as it reported a decline in profits to £2.6bn, with most of that decline coming in Q4, which saw a drop of 48%. The company also warned about the dividend for the coming year, at the same time as announcing a raft of job losses, while CEO Gavin Patterson forfeited his bonus.
Hikma Pharmaceuticals (LON:HIK) has also caught a chill after its generic asthma treatment drug to rival Advair received an unfavourable response from the US (FDA) Food and Drugs Administration, which is likely to delay its approval into 2018.
British Gas owner Centrica (LON:CNA) has also come under further pressure after a downgrade from Macquarie as markets pass further judgement on the Conservative party’s plans to implement an energy price cap after the election.
On the plus side we have seen mining stocks pick up some momentum with Antofagasta (LON:ANTO), Fresnillo (LON:FRES) and Randgold Resources (LON:RRS) all higher.
US
US markets opened lower today as investors absorbed a number of disappointing earnings updates.
Online retailers continue to hit the margins of the big US retailers as Macy’s Inc (NYSE:M) once again disappointed the market after the company’s latest trading update missed expectations. Profits of $0.24c a share fell well short of the $0.35c consensus and furthermore sales fell for the ninth quarter in a row, this time by 5.2%. The company is already well into a restructuring plan that involves 10,000 job losses and the closure of 100 stores.
The fragile feel good factor surrounding Snap (NYSE:SNAP) also came to an abrupt end after the bell last night as the company announced a $2.2bn loss for the first quarter, though a lot of that was down to IPO costs. The omens had already been ominous prior to the IPO to anyone who bothered to take a look at the company’s revenue and profits path, particularly given that an awful lot of its intellectual property is easily replicated, something which Facebook (NASDAQ:FB) has done with its version of “Stories”, which appears to be cannibalising Snap’s revenue stream.
This also helps explain why on all the metrics Snap fell short of expectations, while the reluctance of the management to give any specific forward guidance on future performance had all the hallmarks a laissez faire attitude towards its investors. That’s what you get for investing in a company that has no voting rights on its shares, but investors can’t say they weren’t warned.
On the data front weekly jobless claims once again came in at the low end of expectations, rising 236k, well below an anticipated 245k.
FX
The pound slipped back after a raft of disappointing manufacturing and industrial production data for March. Once again the contrast with the PMI’s was stark where the numbers were much more positive. These losses gained traction after the Bank of England unsurprisingly left rates unchanged with outgoing MPC member Kristin Forbes maintaining her call for a rise in rates, back to 0.5%.
The MPC also upgraded its inflation forecast for this year to 2.7%, while downgrading its GDP forecast to 1.9%, from 2%. There was a slim expectation that we might get another dissent but that was never really likely given the recent weakness in the latest economic data, and the proximity of next month’s election. Governor Mark Carney went on to warn that the pinch on consumer incomes was likely to increase as price inflation moved above wages, thus constraining retail spending, which diminished expectations that rates were likely to move in the near term.
To cap off a trifecta of negative news the latest NIESR GDP estimate for April saw a sharp fall from an unadjusted 0.5% to 0.2%, reinforcing the negative news flow around the pound today.
The New Zealand dollar also continued its slide after last night’s decision by the RBNZ to keep rates unchanged while issuing an extremely dovish statement. The admission by Governor Wheeler that he was happy with slightly softer core inflation, and a weaker currency was not what markets were expecting and the currency dropped sharply.
The Canadian dollar also came under pressure after ratings agency Moody’s downgraded the Canadian banking sector.
Commodities
Crude oil prices have continued to build on their gains of the past couple of days after US inventories showed a sharp drop of 5m barrels. Further noise from Algeria and Iraq that there is a broad consensus to extend the oil cuts for six months is also helping to support prices, though a disappointing report from OPEC about higher production appears to have taken the edge off some of the rebound.
Copper prices have managed to stage a bit of a rebound in the past day or so and that seems to be helping support the mining sector, though iron ore prices have continued to slip.
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