European markets have got off to a subdued start this morning with little in the way of significant drivers one way or the other, though the admission from Larry Kudlow, President Trump’s chief economic advisor, that US China trade talks are currently deadlocked probably hasn’t helped.
The latest trading update from sector peer United Rentals in the US overnight, and disappointing market reaction in after-hours trading appears to have prompted a similar reaction in international equipment rental company and sector peer Ashtead (LON:AHT), which has seen its shares drop sharply in early trading this morning. The performance of Ashtead in the past few months has been fairly solid given it does most of its business in the US where the economy is operating close to capacity.
Advertising agency group WPP (LON:WPP) is also lower after a disappointing second quarter trading update from French sector peer Publicis.
Unilever (LON:ULVR), one of the UK’s most iconic companies is at the centre of a battle with a respect to its domicile in the wake of the 2016 Brexit vote. In its latest trading update, the company said a vote would be held on 25th and 26th October on its plans to move its listing to the Netherlands and out of the FTSE100. While management have blamed Brexit a more probable reason is that Dutch takeover rules are much more restrictive and would make a fresh bid from Kraft Heinz much less likely. This is probably just as well if today’s earnings numbers are any guide. The makers of Marmite, Dove soap and Magnum ice cream had a disappointing Q2 saying that problems in South American markets were holding back its numbers on Brazil and Argentina. Sales rose 1.9% lower than the 2.3% consensus while turnover fell excluding its spreads business declined by nearly 5%. The company kept its forward guidance unchanged.
The problems at Debenhams have given Sports Direct (LON:SPD) a bloody nose today as the company reported a sharp drop in profits after it took an £85m write-down on its stake in the struggling retailer, while the problems at House of Fraser, where the company has an 11% stake haven’t helped either. Profits fell to £77.5m, while UK sales fell 2%. The international business did offer some balm for investors as group revenue rose 3.5%. This doesn’t appear to have appeased investors who have sent the share price sharply lower.
The US dollar has continued to look well supported after Fed chief Jerome Powell’s recent comments to US lawmakers over the past two days. It has continued to rise against the Chinese yuan amid suspicions that the Chinese are deliberately letting their currency slide in order to mitigate some of the damage that might be caused as a result of an escalation in the trade war with the US.
The strength of the US dollar has also seen the pound continue to languish near 10 month lows, despite a week of fairly decent economic data. The political risk premium in owning sterling has increased in recent days as a result of the increasing political gridlock at the top of UK government with respect to the Brexit negotiations.
The latest UK retail sales numbers for June have rounded off a quarter where we saw a significant improvement in UK consumer spending in April and May, while you would have expected that the football World Cup, which saw a big rise in the purchase of food, drink and big screen TV’s didn’t appear to manifest itself into the headline numbers from the ONS this morning.
The latest ONS data show that June retail sales came in at -0.5% a number that appears to diverge from a number of other surveys that showed an increase in consumer spending in June. The weakness in this morning’s number appears to have offered the perfect excuse for traders to push the pound below the $1.3000 level for the first time since September last year.
The weakness of today’s numbers has also thrown some added shade on whether the Bank of England will be able to raise rates in two weeks’ time.
In earnings news Microsoft (NASDAQ:MSFT) will be updating the market after the bell with its latest trading update with expectations of profits of $1.07c a share.
We also have updates from Skechers, General Electric (NYSE:GE) and Domino’s Pizza.
Weekly jobless claims are expected to rise 220k, up from 214k last week.
Dow Jones is expected to open 64 points lower at 25,135
S&P500 is expected to open 6 points lower at 2,809
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.