European markets moved slightly higher on the open this morning, despite a negative Asia session and a ratcheting up of the rhetoric from the Chinese foreign ministry, pushing back against recent events, saying that the US would pay a price over its Hong Kong interference, while also saying that they wouldn’t be pushed into meeting any deadlines on trade.
This morning’s rebound has gained a little more traction on reports that, despite the heating up of rhetoric over trade, the US and China are moving closer to agreeing a deal on the amount of tariffs that would be rolled back in any phase one trade deal
M&C Saatchi (LON:SAA) shares have plunged this morning after the company warned that pre-tax profits would be materially lower than the levels expected at its last interim results. The company said it would be making an £11.6m adjustment to its results following a review by PwC, as well as announcing plans to restructure its UK office in order to improve overall performance.
This is about as bad as it gets for Saatchi, with the sector already under pressure due to the changing dynamics of the digital advertising world on its traditional business model, to score an own goal of this magnitude is excruciating, and calls into question how the business was being run over the last few years. Management should be congratulated for grasping the nettle so to speak in getting these problems out in the open but questions also need to be answered as to how these errors came to happen in the first place.
The reactions in WPP (LON:WPP) and Publicis share prices in regard to this news has been muted, suggesting that investors see this story as very much a Saatchi issue and not a wider advertising sector problem.
This afternoon’s Bank of Canada rate decision is likely to be a tricky decision for the central bank and is certainly more problematic than it was five weeks ago. Up until then the Canadian economy had looked quite resilient, however the recent payrolls data would appear to suggest a significant softening after an unexpected decline of 1.8k. Markets had been expecting a gain of almost 15k. It is important to note that the Canadian economy does have a tendency to see surprise drops in the employment numbers. We’ve seen three other declines this year already, so one shouldn’t read too much into one number, however private ADP (NASDAQ:ADP) payrolls were also weaker. Nonetheless the weakness may well prompt the Bank of Canada to be more dovish than normal, but it would be a surprise if they decided to cut rates today.
The pound has edged above 1.3020 to its best levels since May after another opinion poll that showed the Conservatives increasing their poll lead over Labour to 12 points. While there is still another 8 days to go markets are becoming increasingly reassured that the prospect of a Labour government is slowly diminishing, and while nothing is absolutely certain, the number of sterling short positions is slowly getting squeezed.
US markets also look set to open higher on those reports that a phase one trade deal still remains possible.
Alphabet (NASDAQ:GOOGL) shares are also set to be in focus after last night’s news that Google founders Larry Page and Sergey Brin would be stepping down from their respective roles. Google CEO Sundar Pichai, will now take on a dual role as CEO of the umbrella company Alphabet thus overseeing both parts of the business. What this means for the overall business is not immediately clear, however in the short term its quite likely that very little will change given that both will still retain their seats on the board as well as their controlling stakes in the company.
In a year of IPO’s where share price performance has been less than stellar, we’ll get to hear the latest Q3 numbers from Slack Technologies. It’s been almost six months since the shares hit the tape in the form of a direct listing and the share price performance has been less than impressive. Priced initially at a premium to its $26 launch price the shares surged to over $38, however since then the shine has come off sliding below $26 in October.
The new issues market has seen a lot of the gloss come off it in recent months, a trend that has been exacerbated by concerns over profitability, and valuations that appear to stretch credibility. Valued at $20bn at the time of listing the company has yet to make a profit, losing $138.9m in its last fiscal year. Revenues have been growing, in September the company posted an increase in sales of 58% to $145m, however its operating expenses more than trebled to $478m partly as a result of the listing. To prevent further downward pressure on the share price markets will be looking for signs of increasing revenue growth and evidence that it was getting its costs under control. The company is still expected to post a loss of $0.08c a share, for the quarter and expected to post full year revenues of between $600m and $610m for the year.
Peloton (NASDAQ:PTON) shares also came under pressure on the back of an online backlash over its latest ad which featured a woman taking selfies while conducting her latest exercise regime, after receiving the $2,000 exercise bike as a present from her husband for Christmas. Putting to one side the lazy stereotyping involved, the fact remains that the valuation of the company, currently just below $10bn, bears no relation to its levels of profitability in any case. Currently operating at a loss, the company can ill afford to upset a large proportion of the demographic who would be able to afford to purchase one of their overhyped products.
Dow Jones is expected to open 110 points higher at 27,612
S&P500 is expected to open 11 points higher at 3,104
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