- Record one-day drop in Pearson (L:PSON) shares
- Home Retail Group Plc (L:HOME) uncertain about ‘Black Friday’
- Ferrari (N:RACE) jumps on IPO
- SanDisk Corporation (O:SNDK) acquired by Western Digital Corporation (O:WDC)
- Oil drops on another inventory build
UK & Europe
The biggest fall in five weeks for Chinese stocks and a corresponding slump in commodities has weighed on sentiment in UK markets. Markets on the mainland took solace in some better corporate results, rising slightly despite the shrinking chance of further stimulus from the European Central Bank this week.
The FTSE 100 chopped between gains and losses with strong corporate results from ARM holdings, Sky and Reckitt and Merlin Entertainments striking a deal for Legoland China were offset by a record one-day loss in Pearson shares and a double digit drop in Home Retail Group.
Home Retail Group shares dropped after the retailer issued a profit warning owed to concerns over Christmas sales. It’s fairly unprecedented for a retailer to warn on profits before the holiday season which can make or break a year. Even if the first half saw weaker profits with Argos falling prey to online competition, customers could still come out spending in droves over Christmas. The extent of the sell-off is not just a reaction to the profit warning but the timing of it. The profit warning demonstrates a clear lack of confidence in the strategy for Argos and Homebase over ‘Black Friday’.
The bounce in Pearson’s share price following the sale of the Financial Times has now been completely obliterated. The company has warned on profits from its traditional publishing arm due to lost textbook orders in the United States. Having dived over 16%, Pearson shares now sit at 18 month lows.
Another day another disappointing set of bank earnings. Credit Suisse (VX:CSGN) shares dropped over 5% after the Swiss bank announced it will raise capital after missing profit expectations. There’s a sense that the big banks are perhaps cutting a bit too hard and fast. At the same time, it seems most of the banks are refocusing on Wealth Management but only a handful can come out on top of the same strategy.
US
US stocks were flat in the first hour of trading. Excitement over the Ferrari (N:RACE) IPO and some tech M&A offered a little distraction for traders weary after a number of uninspiring earnings reports. So far earnings at America’s top 500 companies have mostly exceeded estimates but revenues are falling short because of weak growth and a strong dollar.
Ferrari shares jumped 15% in early trading to $60 per share after pricing at $52. At its height Ferrari has been valued at 37 times earnings, compared to a typical auto sector valuation around 10. Investors are clearly expecting Ferrari to ramp up its car production and grow but a lot of the price surge maybe a little over-eagerness to buy into a sexy brand name.
Not be outdone, automaker General Motors (N:GM) shares after earning an adjusted $1.50 per share versus expectations of $1.18 and said it would achieve 10% North American growth this year, one year ahead of schedule.
Western Digital will buy Sandisk for $86.50 per share at a total value of $19bn. There is clearly a lot of synergy between the hard-disk and flash drive markets, however both are under threat from cloud storage. The WD-Sandisk deal is one of the most prominent examples outside of the beer market of buying growth in an industry with falling sales.
Yahoo! (O:YHOO) shares opened lower after the online search and advertising company missed quarterly profit expectations.
FX
The US dollar was slightly stronger on Wednesday as FX markets continue to consolidate ahead of Thursday’s European Central Bank rate-setting meeting.
European currencies were almost completely unchanged.
Any chance of expanded stimulus in the Eurozone seems to be disappearing by the day. Nonetheless, the dollar is slightly bid on expectation the euro may fall on dovish commentary from ECB president Draghi.
The Canadian Dollar sunk against the dollar as the Bank of Canada kept rates on hold at 0.5% while also lowering GDP forecasts for Canada through 2017.
A continued slide in oil and copper prices sent commodity-currencies the Australian and New Zealand dollar lower.
Commodities
The price of oil dropped again on Wednesday with the US crude dipping below $45 per barrel for the first time in two-and-a-half weeks after a surprise $8m barrel build in US inventories.
Gold made a fresh one week low beneath $1170 per oz as the dollar gained and equities strengthened.
The biggest slide in Chinese equities for five weeks took its toll on base metal prices with copper dropping over 1% to a two week low.
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