Europe
It’s been another difficult day for the FTSE100, once again getting dragged lower on the back of a slightly stronger pound, as well as some disappointing trading updates.
Related markets in Europe have been relatively stable, helped by an expectedly dovish press conference from ECB President Mario Draghi, which caused the euro to slide while at the same time as pulling the DAX and CAC40 off their lows.
Amongst the larger fallers Royal Mail (LON:RMG) has slid sharply after reporting its latest quarterly numbers. Having seen the government sell its remaining stake just before last year’s EU vote, Royal Mail has struggled to meet its performance targets, which were always a little questionable in their optimism.
Putting to one side its loss making letters division, which again saw a decline, the parcels division faces huge competitive pressures from sector peers like UK Mail, Fedex, UPS and Amazon (NASDAQ:AMZN) as consumers look for more flexibility in terms of delivery options.
This competitive pressure doesn’t appear to be reflected in the parcels business which has continued to grow, however the drag from the letters division, which continues to decline in the face of electronic mail, and a decline in junk mail, is likely to continue to act as a drag on revenues.
This will inevitably lead to management to focus more and more on costs and with a wage bill of up to £5bn, and an expensive final salary pension scheme whose costs continue to rise, these pressures on margins are only likely to grow. With a consultation on the pension scheme already under way and the unions already pushing back, the outlook for the newly privatised company continues to look challenging, with the shares dropping back sharply, close to one year lows.
Publishing house Pearson’s share price has rebounded somewhat after yesterday’s sharp decline, despite being on the end of a broker downgrade, which is probably likely to be the first of many.
Real estate investment trusts (REIT’s) are also weaker despite a decent set of numbers from British Land which showed that demand for rental property remained resilient, even in London, despite all of the concerns around Brexit which have hammered the sector since June last year. Investors may have been spooked by a slight dip in occupancy rates which has seen shares in Hammerson slide back as well.
US
US markets have continued to trade cautiously ahead of tomorrow’s inauguration of Donald Trump as US President. The inability to retest the recent highs has once again seen investors step back as we saw a fairly subdued open.
Last night’s speech by Fed chief Janet Yellen about the prospect of further US rate rises has also seen US yields push up to one week highs, while giving the US dollar a brief boost.
On the earnings front Netflix (NASDAQ:NFLX) reported a quarterly profit that came in above expectations, with revenue slightly above forecasts as well.
The decent numbers from the banking sector continued today with Mellon Bank reporting a big increase in revenues in Q4, which saw profits rise by $0.20c a share from the year before to $0.77c a share.
The latest economic data continues to point to a tight US labour market with weekly jobless claims coming in at 234k, while the latest Philadelphia Fed manufacturing survey saw economic activity jump to 23.6, a 2 year high.
FX
After initially rallying strongly in the wake of Fed chief Janet Yellen’s comments last night the US dollar has traded in a much more mixed fashion after the ECB left monetary policy unchanged.
While last night’s comments could be considered hawkish they haven’t really shifted the dial that much in terms of the expectations about the number of rate rises we might get this year, and while the Fed may well want to raise rates more than once, events could well contrive to thwart that ambition, given tomorrow’s inauguration of Donald Trump as US President.
Mr Trump still remains a significant unknown quantity, particularly given his recent comments on the strength of the US dollar.
The pound has been amongst one of the better performers holding up well, rebounding from the mid 1.22’s after another speech by Prime Minister Theresa May, this time in Davos to the World Economic Forum, where she reiterated her commitment that Britain would remain engaged in a global role post Brexit.
The yen has been the worst performer on the back of weakness in US bond markets which has pushed US 10 year yields up to one week highs, and further away from equivalent JGB yields.
Commodities
Crude oil prices have rebounded after yesterday’s sell off after a fall of 5m barrels in US API crude stock piles along with a slightly weaker US dollar.
This afternoon’s positive US economic data has knocked gold and silver prices back from their recent highs and on course for their second consecutive daily decline since before Christmas.
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