Markets in Europe have started the month of October on a subdued note, opening slightly higher, and following on from a positive but subdued Asia session, with Chinese markets closed for Golden Week, and after the Reserve Bank of Australia cut interest rates to another record low.
The positive sentiment was a carryover from US markets which closed higher on reports that the US would not be blocking Chinese companies from listing on US stock exchanges. Reports of a ban which had been circulating previously was dismissed as “fake news” by President Trump’s trade advisor Peter Navarro.
The latest manufacturing PMI’s for September from Spain, Italy, France and Germany have served to reinforce the fragility of the manufacturing sector in Europe with Spain weakening to 47.7, Italy to 47.8, and France and Germany weakening to 50.1 and 41.7 respectively, outlining even more starkly the task facing the ECB in terms of the limits of monetary policy, and the need for fiscal reform in the euro area.
Credit Suisse (SIX:CSGN) shares have shrugged off the resignation of COO Pierre Olivier Bouee in the wake of the surveillance scandal of previous employee Iqbal Khan. He also exonerated CEO Tidjane Thiam saying that he acted independently and without the CEO’s knowledge.
High street bakery Greggs has continued to go from strength to strength in its latest quarterly trading update with like for like sales rising 7.4%, while total sales for the nine month period increased by 13.9%. The company did warn that high costs could start to weigh on margins due to stockpiling key ingredients in the event there is disruption from a disruptive Brexit.
At the beginning of last month Ferguson management announced that they were looking at demerging its UK operations from its more profitable US operations, with the UK operations reverting to the Wolseley (LON:FERG) brand, in order to allow each operation to exclusively focus on their core markets. Management said that these discussions were progressing with discussions with shareholders still ongoing.
The company also announced their full year results which saw revenues rise 6.1% to just over $22bn, while full year trading profit rose to $1.6bn.
Its US operation contributed the bulk of its revenue growth, rising 10.1%, to $18.36bn, while the UK operation saw revenues decline 6% to $2.22bn.
JD Sports this morning posted an update with respect to the CMA’s investigation into its acquisition of Footasylum, and the charge that it could result in a significant lessening of competition. The company said that it does not consider there are any appropriate remedies it can take to avoid a reference to the CMA advancing to a stage 2 investigation.
The CMA’s actions here are rather puzzling given how tough the trading environment has been for the retail sector this year, and the number of companies that have folded as a result of being uncompetitive. This was illustrated in the lead up to JD Sports £70m acquisition earlier this year when Footasylum issued two profit warnings, one in September last year, and then another at the beginning of this year, as difficult trading squeezed its margins.
While no one can question that Footasylum was a successful business its overall retail footprint was dwarfed by the size of JD Sports. The annual revenue for Footasylum in 2018 was £194.8m, compared to JD Sports which is expected to see annual revenues of nearly £5.6bn. The CMA’s charge that the acquisition could lead to a lessening of competition doesn’t appear rooted in the reality of the difficulties that are being faced by the retail sector. Having dropped the ball with Booker and Tesco (LON:TSCO) and then coming under fire for its decision to block the Asda and Sainsbury tie up it seems the CMA is trying to justify its existence with this particular investigation.
The Australian dollar is the worst performer on the back of this morning’s largely expected rate cut by the RBA, with interest rates in Australia at a new record low of 0.75%, with the central bank indicating that they were likely to move even lower. While this isn’t unexpected it does beg the question as to why RBA governor Philip Lowe thinks it will work when he himself expressed pessimism that further cuts would help if other countries follow suit.
How long will it be before central bankers realise that the current default position of cutting rates to new record lows appears to be making people save more and not spend more. The current orthodoxy doesn’t appear to be working, yet there appears to be no appetite to try anything different.
Having finished Q3 on a positive note US markets look set to open higher today in spite of concerns that the latest manufacturing data may well follow in the footsteps of European data and weaken further in September.
Dow Jones is expected to open 94 points higher at 27,010
S&P500 is expected to open 10 points higher at 2,986
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