European markets have started the day firmly on the back foot as a raft of company report earnings missed expectations, while investors await the next steps with respect to the constitutional crisis in Spain and today’s EU summit in Brussels.
The Catalan standoff looks set to move towards its denouement this weekend after Catalan President Puigdemont reiterated his pledge to declare independence unless the Spanish government pledged to talks. This appears to have prompted reports that the Madrid government will trigger article 155 at a cabinet meeting this weekend unless the Catalan government backs down. Spanish bonds and stocks have sold off on the back of this potential escalation sending yields higher and financials lower.
The worst performing sector has been basic resource stocks despite better than expected Chinese economic data for September, as retail sales and industrial production improved. It could be that mining stocks are reacting to the fall in fixed investment to an 18 year low.
It’s not been a good time for support services companies this year and Interserve’s woes continued today after last month’s profit warning drop prompted talks with its lenders. In today’s trading update the company admitted it might not meet its banking covenants and set aside a £35m provision due to contract slippages on a number of energy and waste contracts.
Having fended off Kraft Heinz’s attentions earlier this year prompted Unilever (LON:ULVR) management to accelerate its restructuring process and slim-line the business. The performance in Q2 appeared to vindicate this approach, however this morning’s Q3 numbers were disappointing to say the least. While underlying revenues rose 2.6% they fell well short of guidance and were below the numbers in Q2. The company blamed the hurricanes in the US for the drop off in sales with ice cream a particular weak spot. The company did keep its full year guidance unchanged but that hasn’t been enough to stop its shares falling sharply, over concerns about weak consumer spending.
It’s a similar story for Nestle (LON:NESNCHF) another consumer goods company that is also embarking on a restructuring program, and is also suffering from disappointing sales growth in most of its markets.
Advertising giant WPP (LON:WPP) is also underperforming after sector peer Publicis in France posted some disappointing numbers in its latest Q3 update. Revenues came in below expectations raising concerns of a slowdown in the sector.
The New Zealand dollar has slid sharply after it was announced that the new government would be a coalition led by the Labour party who favour a more interventionist approach to governance, along the lines of the UK Labour Party. Could this be an arbiter of things to come here in the UK if the latest Brexit talks precipitate in the collapse of the incumbent Conservative coalition government here?
After three consecutive months of gains UK retail sales fell 0.8% in September, a much bigger than expected drop, though by no means the worst fall we’ve seen this year, having seen a fall of 1.8% in March.
The numbers are still a little disappointing and do point to slowing consumer demand as we head towards the end of the year, and this does seem to be a trend that is being reflected in terms of lower revenue growth in companies like Unilever, Reckitt Benckiser (LON:RB) and Nestle. It would appear that weaker consumer spending is not just a trend here in the UK but something that is being reflected in company profits.
US markets closed at record highs once again yesterday driven by big gains in IBM (NYSE:IBM) shares and a fairly positive Fed Beige Book which showed minimal disruption from hurricanes Harvey and Irma, however with European markets looking soft we look set for a lower open today.
All eyes are likely to be on today’s meeting with current Fed chief Janet Yellen and US President Trump with some Republicans calling for her to be allowed to leave.
Weekly jobless claims are expected to come in at 240k slightly down from last week’s 243k.
Dow Jones is expected to open 82 points lower at 23,075
S&P500 is expected to open 11 points lower at 2,550
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