China Hangover Chips Away At European Stocks

China Hangover Chips Away At European Stocks

CMC Markets  | Nov 14, 2019 16:05

Europe

European markets have slipped back today after the latest Chinese economic numbers pointed to another slowdown in industrial production and retail sales in October. It would appear that the rebound seen in September was a one off and likely fuelled by an attempt to front run the imposition of new US tariffs.

Also weighing on sentiment, somewhat perversely was the latest German Q3 GDP numbers which came in better than anticipated. The German economy managed to avoided a technical recession with a modest expansion of 0.1%, beating expectations of a 0.1% contraction. If anything this could be construed as a hollow victory, as it means that the likelihood of some form of a fiscal response from the German government is much less likely, thus keeping the pressure on the ECB to find new methods of trying to support the economy in Europe, which helps explain the lack of positive market response.

Daimler (LON:0NXX) has been amongst the bigger fallers on the DAX today after the company announced that it would be looking to make big cuts to jobs over the course of the next two years in an attempt to save over €1bn, as the company attempts to manage the transition to cleaner electric vehicles, and move away from the ongoing legacy issues around diesel cars.

Investors liked the look of Burberry's (LON:BRBY) latest numbers today, as revenues showed an increase of 5% to £1.28bn. This improvement also helped drive a strong rise in operating profits of 14% to £203m. An improvement in operating profit margins from 14.6% to 15.9% also helped, with management saying that events in Hong Kong had affected performance, as it took a modest £14m impairment charge due to the unrest.

The initial share price move higher soon gave way to a wider concern that continued unrest in Hong Kong could well affect its numbers even more than the £14m already set aside thus far.

These concerns appear to have translated into further losses for Ted Baker (LON:TED) shares which slid sharply to fresh ten year lows, below 400p. Nonetheless Burberry shares are still in positive territory, near the top of the FTSE 100, probably more as a result of the announcement that the company has signed a deal with Tencent to help develop its social retail in China, with Burberry set to open a new social retail store in Shenzhen.

On the downside 3I Group (LON:III) shares dropped sharply to a six month low, despite announcing a 5.4% increase in total return for the six months to the 30th September, an increase of 5.5% from a year ago. The company also announced that it would be selling a 33% stake in discount retailer Action in a deal which should fetch over £1bn.

FirstGroup (LON:FGP) shares have also fallen sharply after its latest first half results saw the company post an operating loss of £118.1m. This was primarily down to a write-down of £124.4m on its Greyhound bus division, as well as other costs related to restructuring and its US businesses. On the plus side revenues showed an increase to £3.53bn from £3.3bn, a rise of 4.1%.

The sale of the Greyhound bus division can’t come soon enough for shareholders, especially since net debt has now risen by over £1bn, to over £2bn. The group did say that its outlook for the year remained in line with expectations.

Retail stocks have also had a disappointing day, after UK retail sales slid 0.1% in October. The likes of Superdry PLC (LON:SDRY), Ted Baker (LON:TED), Marks and Spencer (LON:MKS), JD Sports (LON:JD) and Associated British Foods (LON:ABF) have all slipped lower on the day.

US

US markets appear to be treading water for the time being, albeit just shy of the record highs of earlier this week. Once again it’s been a mixed picture for earnings, but investors as ever are leaning towards the positive, as opposed to the negative, when it comes to the overall outlook.

Cisco Systems (NASDAQ:CSCO) latest Q1 numbers came in better than expected after the bell last night, beating on revenues and profits, however the company was downbeat on guidance, nudging its projected Q2 profit targets lower by about $0.03c a share to $0.76c a share. Revenues are also expected to be lower.

We also have the latest set of numbers from chipmaker NVidia, after the bell. In its last set of numbers in August reported revenues for Q2 beat expectations, coming in at $2.58bn and profits at $1.24c, driven by a rebound in demand for gaming graphics chips, as well as chips for data centres. This offset concerns about a slowdown in China, as well as disruption from US, China trade tensions. For Q3 expectations are higher with profits set to come in at $1.576c a share.

Disney (NYSE:DIS) shares surged to a new record high after its new Disney+ TV streaming service reached 10m subscribers in a single day, though this was probably helped by an introductory offer of a 7 day trial. Disney’s new offering was also probably helped by the cachet of its brand, however the big test will come in terms of whether the service has stickability, in terms of keeping its users. It certainly has a deeper content pool to call on than Apple (NASDAQ:AAPL) does, but they all lag behind Netflix (NASDAQ:NFLX) when it comes to original content. For now that doesn’t matter so much given the deeper pockets of both, but Netflix must know it has a fight on its hands in the longer run. This is something that investors are now starting to pick up on, and will continue to focus on over the next few months.

Walmart =(NYSE:WMT) shares have moved higher today after its latest Q3 earnings numbers beat estimates, as profits came in at $1.16c a share, helped by a 41% in on line sales, though revenues came in a little light at $127.99bn, but still well above the levels a year ago. More importantly as far as investors are concerned is that the company revised its outlook higher.

FX

The Australian dollar has been the worst performer today after the latest jobs numbers came in worse than expected. The unemployment rate nudged up to 5.3% as 19k jobs were lost in October, against an expectation of a 16k increase. The weak number has once again raised the prospect that the RBA might ease further by the end of the year. The Australian central bank has already cut rates three times this year, taking rates to a new record low. The currency also wasn’t helped by some pretty poor Chinese economic data for October, affording it a double whammy of bad news.

The pound exhibited little reaction to this morning’s disappointing October retail sales number which saw sales decline by 0.1%. The refusal of the Brexit party to consider withdrawing its candidates in Labour marginal seats also helped to limit the upside, over concerns that splitting the leave vote might leave the Conservatives short of a majority.

The euro has slipped below 1.1000 as the prospect of some modest fiscal stimulus slipped away, after this morning’s German Q3 GDP number, which showed that the German economy expanded by 0.1%. A bad number for GDP would have increased the pressure on German politicians to reconsider their black zero policy. A classic case of bad news is good news . Sadly in this case it is likely to take very bad news before German politicians even consider stepping out of their fiscal policy comfort zone.

Commodities

Crude oil prices are up for the second day in a row after the latest inventory data showed that US stock piles fell. This may well be down to some colder weather, while there does appear to be some short covering after some comments that OPEC might consider further output cuts.

Gold prices have continued to edge higher today, the disappointing Chinese data, along with the weakness in equity markets helping to drag it away from the two month lows we saw earlier this week.

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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