Europe
The FTSE 100 is outperforming as the market is benefiting from the China story as well as the Boris Johnson effect. The US-China trade deal story from last week is still doing the rounds, and the well-received Chinese industrial production plus retail sales reports are adding to the bullish sentiment too. The news relating to China has boosted mining and oil stocks, while the Boris bounce is assisting banks, house builders in addition to retailers.
Sports Direct (LON:SPD) shares have surged today on the back of the solid first-half figures. In the six month period, pre-tax profit jumped by 160% to £193.4 million. Group revenue increased by 14%, but that was largely because of the acquisition of House of Fraser (HoF). Stripping out the impact of takeovers, sales fell by over 8.6%. The group now expects full-year profit to increase by up to 15%. Losses at the premium style division have nearly halved. The group has been undergoing a restructuring scheme, and it intends to close even more stores. The high street is under increasing pressure on account of the rise in e-commerce, so some traders though Mike Ashley has over extended himself, but it seems as it things are on the turn. The stock hit its highest level in nearly three years, and if the bullish run continues it might target 500p.
Cineworld (LON:CINE) shares saw a lot of volatility today after it was announced the group will acquire Canada’s Cineplex for $2.1 billion. Roughly two years ago, Cineworld acquired Regal Entertainment in the US for $3.6 billion – which caused the London-listed group to ramp up its debt level. Since acquiring Regal, the company has had to sell-off some theatres and it has revamped others. The latest ticket revenue haven’t been too hot, so one wonders why the group is so keen to overstretch itself. Cineworld could be on the verge of being excsissively indebted, which could be a major problem for the group in the medium-term.
Bank of America (NYSE:BAC) Merrill Lynch have changed their outlook for British American Tobacco (LON:BATS) to buy from underperform, and the Wall Street firm hiked their price target to 3,400p from 2,500p.
Pearson (LON:PSON) shares are in the red after Berenberg cut their price target for the stock to 525p from 620p. The broking firm is concerned there will be further declines in the higher-education coursework business, hence why they lowered the price target.
US
The S&P 500 set yet another record-high as the optimism surrounding the US-China trade story is still doing the rounds. The agreement is expected to be signed early next year, so the feel-good factor will probably hang around in the near-term.
Boeing (NYSE:BA) shares are in the red after the company confirmed it is contemplating halting production of the 737 Max aircraft. The plane was at the centre of two air disasters, and the company has suffered major reputational damage as a result. Pulling the plug on 737 Max would be costly, but it might be the best move in the long-run as that air craft has a dreadful reputation, so a fresh start might be best decision.
The Empire manufacturing reading came in 3.5, while traders were expected 4. Keep in mind the November reading was 2.9. The latest PMI reports were nothing to get too excited about. The flash manufacturing update ticked lower to 52.5 from 52.6, while the services reading rose from 51.6 to 52.2. The announcements paint a subdued picture of the US economy.
FX
GBP/USD hasn’t moved much today despite the disappointing economic indicators. The UK flash manufacturing PMI reading was 47.4, while economists were expecting 49.3. The flash services reading slipped to 49, while the previous reading was 49.3. The pound is still benefitting from the impressive Conservative party victory last week, so the UK could be have an orderly Brexit early next year.
A broad sell-off in the US dollar index has lifted EUR/USD. Judging by the services and manufacturing reports from France and Germany this morning, the eurozone isn’t in great health. The German manufacturing reading was 44.5 – it’s still in a deep contraction, while the services industry is enjoying moderate growth as the reading was 52. The French services sector saw a slight tick up in activity as the reading came in at 52.4, but the manufacturing industry is barely expanding as the level was 50.3.
Commodities
Gold has been pushed higher on the back of the softer US dollar. Traditionally, there has been an inverse relationship between the two markets, and that is playing out today. The commodity hit a six year high in September, but since then it has been pushing lower. Given the strength in stocks, gold might struggle to have major rally as dealers are clearly in risk-on mode.
WTI and Brent crude have been given a lift by the announcement that the US and China struck phase one of the trade deal. China is the largest energy importer in the world so the trade story helped sentiment. The better-than-expected industrial production as well as retail sales from China, gave the oil market a lift too.
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