Europe
European markets have broadly held up fairly well today with the FTSE100 outperforming due to a rebound in oil prices and in spite of a slightly stronger pound, while the DAX and CAC40 have trod water for most of the day.
Amongst the best performers has been house builder Barratt Developments (LON:BDEV) who reported that it expected that its profits for the full year would be at the top end of expectations.
Retail stocks have also enjoyed a respite after some positive broker notes which have helped lift Primark owner Associated British Foods (LON:ABF), as well as Next and Marks and Spencer (LON:MKS).
Maybe ITV (LON:ITV) CEO Adam Crozier had the right idea in announcing his departure as another fall in advertising revenues has seen ITV shares slide back towards its lowest close this year. It’s been ITV studios which is once again underpinning the business with an increase in revenues of 7%.
The advertising market continues to be challenging, not too surprising given the increased propensity of people to record their favourite TV shows and then watch them back later, thus skipping the adverts. In an increasingly cost conscious world why spend huge sums of money on advertising that many people don’t want to see, unless the event is a “live” event.
TalkTalk shares dropped sharply today after management announced a bigger than expected cut to its dividend as new executive Chairman Charles Dunstone took drastic action to shore up the company’s balance sheet.
While the cut was bigger than expected a dividend yield of 8.7% was always going to be vulnerable, particularly when dividend cover is significantly under covered.
Sometimes it pays to take a couple of steps back to move a business forward and in cutting the dividend, and reducing costs and debt the new management appears to be putting in place the conditions to place the company on a more solid foundation. Even after the cut in the dividend the payout still remains at a fairly respectable 4%, which in the current low yield environment is still pretty good.
US
While last night’s decision by President Trump to get rid of the director of the FBI James Comey got a lot of press coverage, its overall effect on investor sentiment has been relatively minor.
The US dollar has slipped back a little, and while US stocks have opened lower, they had already been heading in that direction after finishing slightly lower at the close last night, as North Korea ramped up the rhetoric with respect to another nuclear test.
The S&P500 has thus far not managed to gain a toehold above the 2,400 level and until it does so, despite the continual record highs for the Nasdaq it is likely to remain susceptible to minor pullbacks.
On the earnings front the IPO event of the year was the launch of Snap, a company that has yet to make a profit and in 2016 lost even more money than it did in 2015, despite a significant rise in revenues. It is due to report after the bell and with a valuation of $27bn tonight’s numbers after the bell will need to be good to justify that number. Expectations are for a loss of $0.16c a share for the first quarter.
The biggest risk to investors remains the sky high expectations around the stock, particularly given its demographic of 18-24 year olds and the fact that there is evidence that its user growth is starting to plateau in the wake of product enhancements to similar products like Facebook’s WhatsApp Status which was designed to copy the “Stories” functionality blow away expectations last week. The big question given Snap’s reliance on this revenue stream is how much Facebook (NASDAQ:FB) has cannibalised it with the release of its own version.
FX
A lot has been made of last night’s decision by Donald Trump to fire the head of the FBI, James Comey, however apart from an initial slip in the US dollar, which may or may not have been related the effects have been minimal to say the least.
We’ve seen strong rebounds in the New Zealand and Australian dollar but that was always likely to happen at some point given the extent of recent declines in both, as well as a slightly firmer tone to commodity prices.
The pound has had another crack at the 1.3000 area against the US dollar, falling short again ahead of tomorrow’s Bank of England rate decision and quarterly inflation report. While no one expects a more hawkish bias, any hint that other members of the MPC might be moving to the Kristin Forbes camp in arguing for a hike could see further squeezing in short positions for the pound.
Commodities
Crude oil prices have continued to stabilise after API inventories showed a bigger than expected fall, while Iraq and Algeria were reported to favour some form of OPEC cut extension, while Saudi Arabia announced it would cut back on its exports to Asia. EIA inventories also showed a similar fall, of 5m barrels, which should help support the current rebound, and while it wouldn’t be a surprise to see some sort of rebound it seems likely that we might see some resistance start to come in at around the $50 a barrel level.
Gold has managed to establish a little bit of a base just above the $1,200 area on the back of a slightly weaker US dollar.
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