European markets have opened higher this morning, despite a poor Asia session which saw markets in Asia post their second successive weekly decline, with the FTSE 100 trading at two month highs, above 7,400, helped in part by further weakness in the pound. It looks set to be a mixed week for European stocks with the FTSE100 set for a strong weekl gain, while the DAX still on course for a weekly loss.
In company news, Pennon Group (LON:PNN), owner of Viridor and South West water said it was on track to meet its full year guidance for the year 2019/20, and said it would be conducting a review of its entire business, in terms of future strategy and growth options.
The woes for Commerzbank (DE:CBKG) have continued, after the bank downgraded its revenue outlook for 2019. The bank did warn back in August that improvements to its bottom line would become more difficult if the ECB eased further at its September meeting. While the ECB did ease policy further, rates have edged higher since that meeting, however the German economy hasn’t shown any signs of improvement at all, with the latest PMI data showing further deterioration in the economic outlook.
As a result the bank has said that they are no longer anticipating an improvement in the revenue outlook for 2019. The bank last week also said that they intended to sell their majority stake in its Polish subsidiary mBank (WA:MBK). This seems a rather strange decision given that there is much more growth potential in Poland than there is in Germany which is overbanked and barely profitable. Far better to keep the stake in MBank and close more branches. It is difficult to understand the rationale behind that decision, it may raise money in the short term but does nothing to secure long term profit potential.
The pound slipped back to two week lows against the US dollar in early trading on comments from Bank of England MPC member Michael Saunders who said that rate cuts might be needed even if the UK were to get a Brexit deal. This is significant as Saunders has traditionally been a hawkish voice on the monetary policy committee. Saunders cited low levels of business investment, though he did see some modest spare capacity in the UK economy.
US markets had a disappointing session yesterday, more preoccupied with the whistle-blower allegations than the news that China, US trade talks are due to restart on 10th October. Despite those falls the positive start in Europe looks set to translate into a rebound and a positive open later today.
Micron Technology (NASDAQ:MU) shares look set to open sharply lower when US markets open later this morning after posting some mixed Q4 numbers, with the company warning on its outlook for Q1. It downgraded profit expectations to $0.46c a share, down from $0.49c a share. The company cited concerns about the trade outlook over the course of the rest of the year.
The debut of recreational cycling fitness company Peloton Interactive Inc (NASDAQ:PTON) saw the chain come off yesterday with the shares falling over 10% on its first day of trading, as yet another IPO flops on its opening day. The IPO market has come a long way from the early optimism at the beginning of the year, and to some extent this is a good thing. It appears that investors are becoming more discerning about the valuations of these new companies. It shouldn’t be the exception that a unicorn is profitable as has been the case for most of this year. Investors need to send a message that IPO’s need to be more than a quick win for management and their bankers and there needs to be some hope of the company becoming profitable.
In the case of Peloton (NASDAQ:PTON) that still seems some way off and bankers need to get the message that investors don’t want to be taken for mugs. Hopefully the message is starting to sink in now that Peloton has joined the ranks of Uber (NYSE:UBER), LYFT (NASDAQ:LYFT) and Slack (NYSE:WORK) in finding its business model under greater scrutiny. In a sign that might already be happening entertainment group Endeavour pulled its own IPO in response to the poor performance of Peloton, joining WeWork whose IPO may well never happen given that on paper it is probably only worth $5bn, if comparisons are taken relative to its nearest peers.
Dow Jones is expected to open 50 points higher at 26,941
S&P500 is expected to open 5 points higher at 2,982
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