Europe
It seems entirely appropriate that on the day Snap announces that it is looking to float on the NYSE that European markets look set to snap their long winning run.
At some points investors need to ask themselves how much the “Trump Trade” is actually worth. Earlier this week the S&P500 saw its total market capitalisation cross the $20trn level for the first time ever, while markets in Europe have also seen some strong gains in the last few days despite rising political concerns.
Is today the day when investors look at the gains seen since the 9th November and make a calculation as to how much is priced in relative to what President Trump can deliver?
The US President has promised financial markets something phenomenal in the next couple of weeks; however the big question is will he be able to deliver what the market is pricing in?
This may help explain why markets in Europe are starting to slide back, with the DAX slipping back from its highs seen earlier this year, above 11,800.
This would seem an eminently sensible strategy after several days of decent gains which have largely been premised on an improving economic outlook. Even the FTSE250 which has risen for seven days in a row has slid lower, while the FTSE100 appears unable to sustain last nights close above the 7,300 level, as a number of stocks go ex-dividend with AstraZeneca, BP (LON:BP) and Royal Dutch Shell (LON:RDSa) all losing their pay-out attractions.
It’s not been a good day for defence contractor Cobham (LON:COB), after it revealed a £574m impairment charge across different parts of its business. This is yet another in a long line of profit warnings for the beleaguered company as it reported a profit of £225m for the year. While the direction of travel with respect to profit warnings is worrying, what is more concerning is that the company was unable to provide any guidance about the outlook for 2017.
On the plus side Shire Pharmaceuticals has reported Q4 sales that beat estimates on both the top and bottom line, and this has seen it push to the top of the leader board
Coca Cola HBC is also higher after raising its dividend by 10%, despite lower turnover, though profits improved due to cost savings.
US
While European investors are adopting a more cautious tone US markets still remain fairly resilient, once again posting new record highs on the open helped by more decent economic data as weekly jobless claims came in at 239k, a slight increase on 234k, while the latest Philadelphia Fed survey for February blew out to 43.3, well above expectations of a move to 18, and its highest level since the 1980’s.
On the earnings front TripAdvisor is likely to be in focus after reporting a disappointing performance in its latest quarter after the bell last night. Earnings of $0.16c a share were just over half of what markets were expecting at $0.31c. Revenues also came in short at $316m.
Cisco Systems on the other hand saw its numbers come in ahead of expectations, as did Kraft-Heinz.
On the IPO front Snap, holding company for Snapchat has stated that it envisages a valuation of up to $22.2bn as it looks to float on the US stock market, which seems a lot for a company that has never made a profit, even though user growth is going in the right direction.
That in itself isn’t a particularly instructive number when it comes to the success of an idea as Twitter will testify, which means the company will need to be creative about how it monetises its user base.
It will certainly need a lot of ad revenue to justify that sort of valuation, and while we know that three times Formula One World Champion Lewis Hamilton uses the app, after that famous press conference at the Tokyo Grand Prix last year, when he used a bunny filter, I’m not sure that is enough of an endorsement for an IPO, that seems pricey in the extreme, that gives new shareholders no voting rights at all, and where profits seem some way off.
FX
Despite a continued improvement in US economic data the US dollar has struggled to make any further gains today, sliding across the board, with the safe haven trades of the Swiss franc and Japanese yen rebounding strongly, while US yields have softened a touch after yesterday’s gains.
Why this US dollar weakness is happening now is difficult to pinpoint, however Fed vice Chair Stanley Fischer’s comments to Bloomberg this morning that the Fed was moving closer to the central bank’s target rate for inflation, and as such the time was getting closer to the optimum level for another hike. While these comments were broadly in line with Janet Yellen’s they still don’t chime with the prospect of a move in March, and that may well be behind today’s US dollar weakness. That may change if PCE, the Fed’s preferred inflation measure hits 2%, it is currently at 1.7%.
Commodities
Gold prices appear to be telling us something that equity markets are not. Better than expected US economic data should by all accounts be sending equities and the US dollar higher as better economic performance and the potential for higher rates undermines the attraction of the yellow metal.
Crude oil prices remained becalmed in the same range they’ve been in since the beginning of December, corralled between the effects of OPEC cuts and increasing US shale production.
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