It’s been a disappointing start for European equity markets in the wake of last night’s comments from President Trump that the EU needs to do much more to come to an agreement with the US on trade. He compared the EU’s trading policies as bad as China’s but on a smaller scale.
European automakers have slipped back modestly on the back of President Trump’s rejection of the EU suggestion that tariffs are removed on all cars if the US reciprocates. In reality this was never going to fly because the US would have to drop its 25% tariff on all imports of pickup trucks which effectively close the US market to overseas competition in a sector where US build quality falls short of EU build quality. BMW, Volkswagen (DE:VOWG_p) and Daimler shares are all lower.
Sage Group (LON:SGE) shares have come under pressure after CEO Stephen Kelly announced he was stepping down. The company reiterated its full year guidance, while reassuring that a new CEO would be in place as soon as possible.
On the upside Whitbread (LON:WTB) shares have surged to their highest levels since December 2015 on news that Coca-Cola (NYSE:KO) is paying $5.1bn for the Costa Coffee business.
For some time Whitbread CEO Allison Brittain had swatted aside speculation that the company should divest itself of its Costa Coffee business saying that it didn’t make sense to do so in the middle of a restructuring program.
In April she bowed to investor pressure, but insisted that the process could take up to two years to complete saying it would make more sense once the roof was back on, and the rewiring had been done, on the turnaround process.
It is therefore with some surprise that today’s announcement from Coca Cola that they have agreed a deal to buy the coffee chain for $5.1bn as the US business looks to diversify away from its core business of sugary drinks, an area that has been increasingly attracting government ire due to a rising global obesity problem.
We also saw a positive market reaction to the latest trading update for Restaurant Group (LON:RTN), owner of Frankie and Benny’s, which has been undergoing a restructuring process of its own, as it completes the process of closing 33 underperforming outlets. While sales fell 3.7% on a like for like basis and profits were slightly lower at £11.7m, there is evidence that the business remains on course to meet its full year guidance. Higher business rates, wages have hit margins quite hard across the retail sector this year, while consumers have become much more discerning in terms of their dining habits.
Management have taken steps to address these issues with new delivery services but it remains too soon to suggest the business is out of the woods quite yet.
The weaker tone that was set in the wake of President Trump’s comments last night could well stabilise as we head into the US open with a flat open expected for US stocks despite this week’s new record highs.
Amazon (NASDAQ:AMZN) could well find itself in the spotlight again after closing above $2,000 a share yesterday. Investors seem keen to push the market valuation up towards the $1trn valuation that Apple (NASDAQ:AAPL) achieved earlier this year, which would make it the second US corporation to meet this landmark valuation.
Dow Jones is expected to open 5 points lower at 25,982
S&P500 is expected to open unchanged at 2,901
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