It’s been a fairly decent quarter for European equities, and global equities in general, and a welcome respite after the large downdraft that blew through the markets at the end of last year, though we haven’t been able to unwind all of those losses.
Amongst the drivers behind this rebound is rising optimism about the prospects of a US, China trade deal, but the real game changer appears to have been the change of tack by global central banks at the beginning of the year, started by the US Federal Reserve, which called a halt to a concerted tightening of monetary policy.
This about turn by the Federal Reserve also saw bond markets rebound pulling yields sharply lower, as concerns about a deflationary impulse rippled through global markets, also prompting the Chinese central bank, as well as the European Central Bank to signal that they would also remain accommodative on a much longer time horizon.
As far as earnings are concerned it has been a much more mixed picture this quarter as guidance expectations sector wide have been guided lower, by company management as they bend to the prospects that growth expectations for 2019 are likely to be lower than expected, on the back of slower economic activity.
Markets in Europe have opened higher this morning continuing the positive mood in Asia after US Treasury Secretary Steve Mnuchin said that trade talks in Beijing were constructive, and that he looked forward to concluding them in Washington next week.
Basic resource and oil and gas have been leading the early gainers, led by Rio Tinto (LON:RIO) and Glencore (LON:GLEN), while on the downside AstraZeneca has slipped sharply after announcing it would be looking to raise $3.5bn in a placing of new shares.
Travel operator TUI Travel have also seen their shares drop sharply after cutting guidance for 2019 in the wake of the groundings of the Boeing (NYSE:BA) 737 MAX, due to having to secure extra capacity, by extending leases on aircraft that were supposed to be replaced by the 737. TUI also said they were having to temporarily lease additional aircraft to compensate for the loss of the 15 737 MAX currently sitting idle.
It can only be a matter of time before travel operators and airlines start knocking on Boeing’s door for compensation as a result of lowered guidance and profit expectations which has seen investors knock millions of pounds of their market valuations.
Earlier his month high street retailer H&M had a roller-coaster day closing sharply lower, over concern that the sharp 4% rise in Q1 sales came at the expense of a reduction in margins.
Since then the shares have recovered most of those losses, and this morning’s news that profits came in at Skr1bn, well above estimates of Skr677.8m, have seen the shares rise sharply in early trading. This proves once again that setting the bar low offers a better chance to beat expectations. Despite this better than expected performance profits were still down 17% on a year ago, to record the worst quarter since 2001.
Gross margins also came in better than expected, coming in at 50%, above expectations of 49.2%, however inventory levels continue to be a problem, in that they still remain quite high, meaning a lot of unsold stock being unproductive. While this is disappointing H&M is still doing better than a lot of its high street peers while looking to push into new markets in India, launching on India’s e-commerce sites Myntra and Jabong. The company also said that Q2 was likely to perform better than last year on the back of lower markdowns.
The pound has continued its recent slide ahead of today’s attempt to pass the withdrawal agreement, without the political declaration on the future relationship. This attempt by the government to try and get the deal passed looks unlikely to succeed, given the lack of support from the DUP, as well as a reluctance of a hard core minority of Conservative ERG members to support the deal.
With the options narrowing it is becoming ever more obvious that the nature of any outcome remains binary with either a no deal outcome, or a revocation of article 50 the only options in the hands of the UK parliament. This would mean the EU has a choice, continue the uncertainty with another extension or cut the cord on April 12th and let the cards fall where they may.
US markets closed higher yesterday with the S&P on course for its best quarter since 1998, however it still remains shy of reversing the losses we saw in Q4. Investors in the US are likely to have their eyes on the Lyft (NASDAQ:LYFT) IPO this afternoon after management lifted their price range for today’s launch to $70-$72 a share, valuing the business at $24bn.
The frenzy is likely to see the shares open at a hefty premium later today as early adopters look to hitch a ride on the early pop, which has been a characteristic of a lot of US IPO’s in recent times. Snap had a similar pop higher in its first weeks of trading before falling flat on its face. Let’s hope Lyft doesn’t suffer a similar fate, given that there remains little prospect of it turning a profit in the foreseeable future.
Dow Jones is expected to open 60 points higher at 25,777
S&P500 is expected to open 5 points higher at 2,820
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