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Huawei Waiver Offers Up Hopes Of Trade War Compromise

Published 21/05/2019, 08:50
Updated 03/08/2021, 16:15

European markets have got off to a positive start this morning after yesterday’s sharp sell off with banks leading the gainers after the US issued a 90 day waiver to Huawei to continue supplying software updates and hardware maintenance to US and other companies to ensure the integrity of the current infrastructure and security of its users.

While it’s a small measure it does perhaps symbolise that there might be a reverse gear from the current slide to what could well turn into a full blown trade war between the US and China, that could drag the whole global economy down in its wake.

WH Smith (LON:SMWH) used to be well recognised brand on the UK high street and to some extent still is, however the company’s retreat from the high street to transport hubs has helped insulate it from the worst of the retail sectors woes, as total group sales over the quarter rose 15%.

To give an indication of this move away from the High Street WH Smith has over 1,600 stores, with only 599 situated in town centres.

Despite that the high street business still remains the Achilles heel of the business with total sales in its high street division declining 1% over the period. The move into Post Office franchising has helped margins improve with 184 now open, including 17 new locations.

The travel division on the other hand has continued to outperform with total sales rising 26% across a range of locations, including 425 international units, including the Middle East, Australia, South East Asia, the Americas and India.

It would appear that a mild winter has helped Halfords post a better than expected performance from its retail division as cycling saw a rise of 2.6% in like for like sales, not that you’d know it from today’s share price reaction. This outperformance had the offsetting effect of meaning that motoring took a dip due to lower sales of winter related products which saw a drop of 0.4% on a like for like sales basis.

More broadly the company had a solid year with online sales rising 9.5% with margins also improving, as group revenues showed a modest increase on the year, coming in at £1.14bn.

Profits, on the other hand were down by £12.8m from a year ago to £58.8m, which was a little disappointing, though should be set in the context of higher motoring sales and revenue from a year ago when the “Beast from the East” prompted a higher motoring sales mix.

The company also reduced its debt levels by £6m to £81.8m

In what is disappointing news for competition in the UK banking sector, Tesco (LON:TSCO) have announced this morning that they will be withdrawing from the mortgage market. As with any business the potential for growth depends on the ability to forecast a clear path in terms of profits growth. The decline in yields, as well as a tough housing market appears to be making that process much more difficult to manage and as such Tesco appear to have decided to call time on it. The company will also be looking to find a buyer for the total lending balances of £3.7bn.

The slowdown in housing and construction sectors doesn’t to be holding back Galliford Try (LON:GFRD) which has posted a decent trading update for the year to date, prompting a decent rally in the share price. Linden Homes continues to perform well, albeit with a slightly slower sales rate, and selling prices. Management say they expect to see this year’s performance to be in line with expectations.

In the wake of recent events today’s Metro Bank (LON:MTRO) AGM is likely to be a feisty affair. For the second year running Legal and General Investment Management will vote against Vernon Hill as Chairman of the beleaguered bank, on the basis that it has long standing concerns about the governance of the bank.

Given recent events these concerns are entirely valid and despite the bounce in the share price in the wake of last week’s capital raising it is quite clear that the bank could do with new management seeing that in the last twelve months the bank has lost nearly £3bn of its market capitalisation.

US markets, having seen a sharp sell off yesterday on the back of the Huawei escalation could well see a rebound as a result of the waiver by the US commerce department .

Tesla (NASDAQ:TSLA) shares are likely to be in focus as concerns rise about the company’s ability to deliver on its production targets this year. Quite why it’s taken investors this long to realise that the company’s production target was unrealistic given that it was well known over a month ago is a little puzzling, but better late than never I suppose.

DIY chain Home Depot (NYSE:HD) shares are also expected to in focus later today. Last year the company posted record sales in 2018, a rise of 7.2% to $108.2bn, a decent performance not really reflected in the share over the last 12 months. The company appears to have benefitted from a struggling US housing market, as consumers decide to spend money on improving their existing home, rather than move to a new one. Its forward guidance was also positive in that guiding expectations for fiscal year 2020 of total sales of $115bn to $120bn, however it would appear that investors were hoping for more. As a bellwether of the US economy and the US consumer, how Home Depot does in this latest update is likely to offer clues as to where the US economy is heading over the next quarter. Profits are expected to come in at $2.18c a share, up from $2.09c at the end of Q4

Dow Jones is expected to open 70 points higher at 25,749

S&P500 is expected to open 9 points higher at 2,849

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