Having finished October on a strongly positive note, equity markets appear to be losing some of that momentum ahead of tomorrow’s US payrolls report. The rise in US markets was mostly driven by a decent rebound in tech stocks, though the sector still finished the month lower by about 8%.
A slide in the Nikkei 225 was counterbalanced by a continued rebound in Chinese markets as traders bet on further stimulus measures from Chinese authorities and the latest Caixin manufacturing PMI survey for October picked up slightly.
As a result today’s European market open has seen a big dip lower on the open as investors take stock of not only how far we fell back in October, but also whether the rebound seen in the last two days marks the beginning of a slow move higher, or a temporary pause before another leg lower.
On the earnings front Royal Dutch Shell's (LON:RDSa) latest Q3 numbers always had a high bar given BP’s results earlier this week, but also the strong performance that the company put in with its Q2 numbers earlier this year, which saw profits rise by 30%.
Today’s Q3 numbers also saw a big rise in profits, this time by 40% to $5.6bn, however the trouble with a high bar is that sometimes you can miss it, and this is what has happened again this quarter, coming in short of expectations of $5.7bn. This may help explain why the shares have underperformed this year, up around 2%, compared to an oil price that is higher by 10%.
Looking at the underlying numbers over 9 months, income is 94% higher compared to 2017, with basic earnings per share higher by 91%, with the higher oil price helping to boost those numbers, however investors appear unimpressed with the shares continuing to tread water.
The $25bn second tranche of the share buyback program announced earlier this year will also take place over the course of the rest of the year.
BT Group (LON:BT) surprised the markets this morning in the wake of the appointment of its new CEO Philip Jansen at the end of last month. The company raised its guidance for the year to a range of £7.3bn to £7.4bn, sending its shares sharply higher, after reporting a 24% improvement in first half profits before tax to £1.3bn. This was despite lower revenues from the same period last year, which fell 2% to £11.59bn, as the company improved its margins in its consumer business.
Australian miner BHP Billiton (LON:BLT) announced this morning that it would be returning the money it received from BP (LON:BP) for its US shale assets to shareholders, by way of a $10.4bn stock buyback and special dividend starting immediately.
Just Eat (LON:JE) shares have taken a pummelling in recent weeks, down over 25% since July, over concerns that the entry of companies like Deliveroo and Uber could well take a huge lump out of its earnings. Today’s numbers would appear to conform some of those concerns with the company also warning that its investments in Brazil and Mexico would push its full year numbers towards the lower end of its target range for guidance, however most of this would appear to be discounted with the shares slightly higher on the day.
The pound has had a buoyant last 24 hours on speculation that we could get a Brexit deal this month, while reports of a deal on UK financial services has also helped sentiment. Speculation that a rate rise could well come sooner rather than later has also helped boost the pound, given the recent budget announcements amount to a fiscal loosening which may prove to be inflationary in the longer term.
All of the above would of course be contingent on a benign outcome with respect to Brexit negotiations, while today’s Bank of England inflation report and rate meeting while unlikely to move the dial in terms of the timing of a rate rise, could surprise if the central bank guides higher on its inflation expectations.
An adjustment higher in the central banks inflation forecast could shift rate hike expectations which on current prices appear a little on the dovish side. Today’s manufacturing PMI for October should also give a decent indication as to whether the recent travails in the global manufacturing sector are weighing down UK activity, which has remained fairly resilient despite sharper slowdowns in Europe. Expectations are for a decline to 53 from 53.8, which would still be its lowest level this year.
US markets look set to build on the gains of the last two days with another higher open this morning, despite today’s weakness in Europe with US investor’s markedly more optimistic than their European counterparts.
We’ll also get to see the latest Q4 numbers for Apple (NASDAQ:AAPL) after the bell, where we’ll get to see early indications of demand for the new Watch and the new iPhone XR’s. The company’s Q3 numbers surprised to the upside with their best ever Q3 performance though the average selling price did fall slightly to $724 from the previous quarter, reflecting good demand for lower priced models. Apple did say that the iPhone X was its bestselling model, raising the question as to whether the new XR has come too soon. It’s also worth keeping an eye on its services division which has been adding steadily to the revenue stream, where it has doubled its revenues since 2015 to just shy of $10bn in its most recent quarter.
Dow Jones is expected to open 48 points higher at 25,163
S&P500 is expected to open 3 points higher at 2,714
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