While the news cycle is full of last night’s impeachment of President Trump by House Democrats, financial markets have given the news a collective “meh”, and while US markets finished slightly lower, this news isn’t exactly a surprise to those who follow events in Washington DC.
The reality is no-one cares given that its highly improbable that the Senate will ratify proceedings, which means the story will inevitably die a death, and while Democrats will be able to point to a political victory ahead of next year’s Presidential election, it’s unlikely to mean that much unless they can get behind a credible candidate to go up against the President.
It’s a big day for central banks today with the Bank of Japan leaving monetary policy unchanged and Asia markets slipping lower with little in the way of flow as we head towards the end of the week.
Markets here in Europe have opened mixed ahead of today’s Bank of England rate meeting, where it is widely expected that rates will be left unchanged, despite recent softness in the headline data and the decision by two policymakers at the November meeting to vote for a rate cut. Both Michael Saunders and Jonathan Haskell pushed for a rate cut and are likely to do so again later today in a sign that the same old group think is alive and well in Threadneedle Street.
There is zero evidence that a cut in rates would make any difference at all to the underlying economic picture either here or elsewhere, though the call for a cut in rates last month may well have been predicated on an expectation of continued political gridlock. We now don’t have that, and as such the economic outlook could change markedly heading into 2020 if the government embarks on a fiscal stimulus in 2020.
At the last inflation report the bank cited concerns about global growth and trade, as well as the potential impact of any new Brexit deal, along with concerns about the outlook politically. That has all changed and that means the central banks assumptions will need to change as well.
A rebound in investment spending as well as a fiscal boost in the New Year could change all of this, and as such could change the calculus towards the prospect of a rate hike. Today’s Queen’s speech should add some extra colour to that with respect to the governments order of priorities towards the UK economy.
Inflation is still subdued at 1.5%, while wages are rising at over double that, which means the deflationary threat appears muted which means that the Bank of England can afford to wait and see.
In company news Capita (LON:CPI) has seen its shares slide sharply after Deutsche Bank (DE:DBKGn) downgraded the stock to a sell, with 155p price target, saying that the post-election bounce has gone too far. The shares have rallied strongly in the past week or so and even in light of today’s declines are still up over 45% year to date. The company is currently in the midst of a turnaround plan under the stewardship of Jon Lewis who took over two years ago when the business was in the midst of a crisis and had to raise £700m in order to survive. Lewis’s plan was to simplify the business which had become too complex, and was losing money hand over fist, earning it the nickname of “Crapita” as investors feared it might go the same way as Carillion. Almost two years on and progress is being made though it still remains well below the levels we saw prior to the profits warning in early 2018.
US markets look set to open slightly higher later today with the main focus still on company earnings after yesterday’s disappointing numbers from FedEx (NYSE:FDX).
We have the latest Q2 numbers from Nike (NYSE:NKE) where the shares are currently trading near record highs. The company has managed to navigate its way around being in the firing line in the US, China trade war. At its most recent update the company reported a 25% jump in Q1 profits, driven by strong revenue growth of 7% to $10.7bn.
Sales rose in all regions including a 27% rise in Greater China. With the US consumer also buoyant, sales there rose 4%, though management did warn that the ongoing trade dispute was expected to hit its results between Q2 and Q4. Its recent acquisition of analytics platform Celect is also expected to enhance the company’s ability to optimise its inventory across multiple channels. Expectations are for profits to come in at $0.57c a share.
Boeing Co (NYSE:BA) has also been downgraded by Moody’s ratings agency as the grounding of the 737 MAX jets gets extended well into 2020, and the company’s plans to suspend production of the plane, from January next year.
Dow Jones is expected to open 30 points higher at 28,269
S&P 500 is expected to open 3 points higher at 3,194
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