Europe
It’s been a fairly lacklustre end to the week with mainstream European markets slipping back slightly and closing the week lower against a backdrop of a little uncertainty about the time line of a US tax reform package, and some disappointing earnings announcements, while over in Brussels UK Prime Minister Theresa May appears to have won the backing of EU leaders in transitioning into the next phase of Brexit talks.
The FTSE100 has outperformed on the back of an afternoon slide in the pound after EU leaders stated that the second part of the talks was likely to be even harder than the phase just completed.
In company news, this morning’s announcement by BT Group (LON:BT) and Sky (LON:SKYB) to cross-sell their premium content is an interesting development in light of Disney’s intended acquisition of Sky, sending the Sky share price to close to its highest level this year.
This morning’s deal certainly seems a better one for BT than it is for Sky given that Sky will take BT’s sport content, while BT gets Sky Sports, Sky Cinema and Sky Atlantic channels, and could even gain more access to content further down the road, depending on how the Disney (NYSE:DIS) takeover plays out.
The timing is certainly an interesting one given that the talks about sharing content between BT and Sky have been ongoing for a few years now and it’s quite possible both parties have an eye on the next round of bidding rights on Premier League and Champions League football, which starts next February. This may explain why the deal won’t start until 2019 when the next football rights package will have been completed.
The costs of these are not insubstantial amounts of money, and getting a return on this sort of investment is becoming much more challenging. At a time when content is all important and brands like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) are proving such disruptors this tie-up could suggest a more collaborative approach when it comings to bidding next year.
When these rights were last up for negotiation Sky and BT went head to head, but this agreement to cross sell across each other’s platforms could help keep a lid on prices if they refuse to go head to head with respect to the bidding rights.
Persimmon (LON:PSN) is amongst the underperformers after its chairman resigned in a row over executive pay.
Retail stocks have also slipped back after Swedish retailer H&M (LON:0HBP) reported a big drop in Q4 sales of 4%. This has seen the shares hit their lowest levels since 2009 as concerns about how the company intends to adapt to a changing retail environment spooks investors. In response the company is expected to announce the closure of more stores while at the same time enhancing its digital operations.
Other UK retail brands have slipped back with Next and Marks and Spencer (LON:MKS) leading the decliners. It’s been a difficult year for the big box retailers with Zara and New Look owner Inditex (MC:ITX) which has been held up as one of the market leaders, not having a particular great year either, its shares down about 5% year to date.
Ryanair’s share price (LON:RYA) has come down to earth with a bump, hitting its lowest levels since April, despite the airline agreeing to recognise pilot unions for the first time in its history as it looks to head off a Christmas strike by its cockpit aircrew.
This capitulation by airline management while welcome for passengers if a strike is averted, is likely to see costs for the airline increase in the longer term, as it will no doubt force concessions elsewhere with its other employees. This in turn could well see the airline fall short of its full year profit outlook.
US
US markets opened higher today as sentiment continued to yo-yo on whether US policymakers would be able to deliver anything meaningful on a deliverable tax reform bill.
President Trump’s comments that he was confident that Florida senator Marco Rubio would ultimately support the bill appear to have been taken at face value by the markets, prompting today’s rebound, but it would be foolish to take it for granted.
Twenty-First Century Fox (NASDAQ:FOX) and Disney shares have continued to push higher over optimism that this big deal will get the go ahead
On the retail front Costco (NASDAQ:COST) shares have risen sharply after the company reported revenue and profits better than consensus, with the on-line business doing particularly well, as sales jumped 43%.
On the data front Empire manufacturing softened slightly in December, coming in at 18 from 19.4 in November, while industrial production rose 0.2% in November, though the October number was revised higher to 1.2%.
FX
The pound appears to be giving the impression of someone who has had too much Christmas prosecco at lunchtime, rolling over sharply in the afternoon after comments from a number of EU leaders that the next task of transitional and trade talks is likely to be the most difficult.
This has prompted traders to focus what the UK’s position is likely to be and forced them to conclude that we don’t actually know with any clarity.
The US dollar has managed to recover some ground as some end of week optimism returns with respect to a tax deal.
Commodities
Oil prices have managed to stay near their recent peaks with the ongoing outage in the North Sea continuing to support Brent prices.
US WTI prices continue to lag well behind the Brent benchmark on the back of rising production levels and could well start to limit the upside in the coming weeks.
Copper prices have continued their run of recent gains, rising for the sixth day in succession on the back of this week’s decent manufacturing data from China as well as across Europe.
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