Another good day for the tech sector saw US markets continue to break records last week with the S&P 500 making a new record high on Friday, however it is notable that the Dow Jones remains well short of the highs seen in the summer. This ought to give some pause for thought to those who think there is significant further upside for US stocks.
There is some optimism that the ongoing US, China trade talks will continue to make progress, and that the imposition of further tariffs is unlikely in the short term, however the advances that markets appear to be pricing in would appear to be well short of the optimism of the summer when we were informed by US Treasury secretary Mnuchin that a deal was 90% done.
Any new deal that the US and China arrive at in the coming months is likely to fall well short of that bar, and lest we forget tariffs are higher now than they were then. Despite this, the selloff in US treasuries would appear to suggest that investors appear more comfortable owning risk assets than they were a month ago with the US 10 year yield up above 1.8%, well off this month’s lows off 1.51%.
European markets also appear to be getting a modest boost from the prospect that a disruptive Brexit is off the table for now, with the likelihood that EU leaders will grant an extension of up to 3 months until the end of January 2020, in order to make time for a possible UK general election.
Last week the DAX hit a new 14 month high, and while the FTSE 100 also had a good week, this morning’s open has seen a much more mixed one, with the FTSE100 slipping back, dragged down by the banks and telecoms sector.
The latest Q3 numbers from the UK’s biggest bank HSBC (LON:HSBA) appear to underline the recent decision by the bank to remove previous CEO John Flint, with the shares dropping sharply on the open, after profits and revenues fell short of expectations in Q3.
New interim CEO Noel Quinn wasn’t slow in stamping his mark within days of taking over saying that the bank intended to move forward with plans for 10,000 job losses, and this morning’s Q3 numbers appear to support the case for radical action in culling areas where the bank is underperforming, with the US and Europe likely to bear the brunt.
Quarterly reported profits showed a fall of 18%, coming in at $4.8bn, while revenues fell 3% to $14.3bn. The weak economic environment has also meant that the bank has dropped its RoTE target of more than 11% for 2020. The bank also warned that it would have to impose significant restructuring costs as it conducted a strategic review to address the weaker areas of the business with more details to be announced when it publishes its full year numbers in February next year.
They say diamonds are a girl’s best friend and Europe’s richest man, and owner of Louis Vuitton Bernard Arnault, obviously feels that adding US jeweller Tiffany to his list of brands will prompt a similar uplift to LVMH’s global revenues. His attempt to put a $14.5bn ring on Tiffany, having already added Bulgari a couple of years ago is likely to take the fight in this sector to its closest rival Richemont, who own Cartier, and would help LVMH (PA:LVMH) in gaining better access to US markets.
Tiffany (NYSE:TIF) shareholders are unlikely to accept this initial bid given that the bid is only a modest premium to its current valuation of $12bn, and could hold out for more, however its profits and sales have been hit hard from the fallout in the US, China trade war, as well as the unrest in Hong Kong.
Other shares in the luxury sector including Burberry have edged higher on the back of this morning’s bid news.
The pound is more than hanging onto the gains we’ve seen so far this month despite speculation that a general election is on its way before the end of the year. It is increasingly likely that EU leaders will grant a Brexit extension until 31st January 2020 on that basis, and while today’s attempt to get MPs to vote for an election today may well fail, given the higher bar of a 2/3rds majority, there does appear to be a Plan B with a LibDem/SNP plan which may well require a simple majority.
US markets look set to open higher today in what is likely to be a big week not only in terms of an expected US rate cut when the Fed concludes its meeting on Wednesday, but also in terms of the latest US Q3 GDP numbers, but also the latest jobs numbers for October.
Dow Jones is expected to open 60 points higher at 27,918
S&P500 is expected to open 6 points higher at 3,028
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