Stocks in Europe slipped in early trading on Friday with traders sitting on their hands ahead of the release of key US employment stats. Cracks are appearing in Catalonia’s move to independence, but until the notion of independence is dispelled, contagion risk remains. The DAX index bucked the trend with small gains after German factory orders saw the biggest monthly jump this year.
Banks abandon Catalonia
The decision by B. Sabadell (LON:0H00) to re-domicile out of Catalonia will challenge the resolve of Separatist leaders. It seems likely Caixabank (LON:0ILK) will follow suit if the regional parliament declares independence. Banks threatening to uproot headquarters is nothing new to UK investors who heard the same things during the Scottish and EU referendums- none ever did.
Luckily for UK investors, the pound’s negative correlation with returns on blue chip stocks is going strong. News of a Tory rebellion led by the party’s former Chairman puts more pressure on Prime Minister May to resign. The FTSE 100 is sitting pretty above 7500, having gained 300 points in 3 weeks with the help of Sterling losing value. It’s a year since the pound flash crash last October. A repeat performance would probably mean a fresh record high for the FTSE 100.
EasyJet shares lose altitude
Shares of EasyJet (LON:EZJ) lost altitude after reporting a second year of sliding full-year earnings. A £100m currency hit from a weaker pound and an intensifying price war between budget airlines are the principle causes. Strong net cash levels mean profitability shouldn’t be too impaired by the planned ‘significant’ investment into new aircraft. Price wars typically end in the survival of the fittest. The demise of Monarch while Ryanair bookings are in disarray presents EasyJet with a golden opportunity to capture market share.
From Morning Call…
Catalonia separatists talk but can they walk?
We referred to signs of brave value-buyers in Spanish markets yesterday morning and they quickly got the just-deserts for their bravery. On the request of Catalonia’s socialist party, Spain’s constitutional court has blocked the planned regional party meeting on Monday where leaders were expected to announce independence. Spain’s IBEX index has taken off on reports of disunity within the ranks of separatist parties in Catalonia. Madrid is continuing its crackdown and Catalan leaders are feeling the heat. So far it has only been Spanish assets reacting to the Catalonia crisis. Should leaders attempt to have the meeting on Monday despite the court order, other European markets might finally participate in the resulting risk-off mood.
Forex traders call Mayday on the pound
The British pound has fallen out of bed since the end of the Conservative party conference. The pound’s weakness is not simply a function of dollar strength, the fact that it is falling against the euro too would suggest the causes are local. MPs’ confidence in Theresa May is at a low-point. But having made it through the poor election result, it would seem daft for her to quit, in effect because she had a cold. If May can hang on, the pound is due a correction of recent losses, at least against the euro.
Wall Street records breaking records
Stocks on Wall Street broke new records on Thursday. The S&P 500 hit its 6th consecutive closing high on Thursday for the 1st time in more than 20 years. A backdrop of strong economic data, optimism for corporate earnings in the third quarter and the recently released plan for tax cuts are fuelling the latest surge. It’s hard to see how Donald Trump’s plan to revamp the US economy can live up to the hyped-up expectations but repeatedly fresh record highs indicate confidence not caution.
Dollar finds its mojo again
The dollar index struck its highest in 7-weeks during the Asian session on Friday. Downbeat expectations for today’s US jobs report is having little-to-no impact on belief the Federal Reserve will lift rates again in December. Expectations are unusually wide-ranging for today’s non-farm payrolls so there is good scope for surprise. Consensus expectations are that the US created 90k jobs in September, down from 156k in August. It would probably need a contraction in the US workforce in September to put off a Fed seemingly intent on its third rate hike this year.