The FTSE opened gingerly lower this morning but European stocks are trading higher in the calm before the storm. Italy has just approved its draft budget for next year which is setting the country on a collision course with the EU as its deficit target remains above the Eurozone’s requirements and once the draft is submitted to the European Commission the EC is likely to reject the proposal.
Also, the EU’s 24-hour respite given to Britain after the PM’s decision to disengage from Brexit talks is about to expire.
Brussels negotiators are keen to have some clarity on where talks stand before the EU summit on Wednesday but the future of the Northern Ireland border remains an unsurmountable issue. The next two days will be crucial as the EU gets ready for a summit Wednesday; a lack of compromise will bring Britain one step closer to a no-deal Brexit with all of its unforeseeable consequences. The currency markets seem unperturbed by all the political shenanigans in the background and the pound is gaining ground against the dollar and the euro.
More US banks to report Tuesday
Talking about a vote of no confidence: shares in Goldman Sachs (NYSE:GS) have dropped to a two year low as the Wall Street stalwart gets ready to report results on Tuesday - traders are pricing in expectations that the bank has underperformed other major US investment banks. The normally indomitable Goldman has struggled with generating fresh business, Dodd-Frank reforms have hampered its proprietary trading and the slowing mergers and acquisitions market has also left a mark on a declining bottom line.
Morgan Stanley(NYSE:MS) (NYSE:MS) and Blackrock (NYSE:BLK) will also publish their quarter results later today but their figures have been harder to gauge.
So far in this earnings cycle JPMorgan (NYSE:JPM) (NYSE:JPM) and Bank of America (NYSE:BAC) (NYSE:BAC) numbers have come in below analysts’ forcasts but Citigroup (NYSE:C) did better than expected and was rewarded with a jump in its share price.
Saudi tensions calmer
The tensions between the US and Saudi Arabia over the likely murder of dissident Saudi journalist Jamal Khashoggi which briefly threatened to push oil prices into the stratosphere seems to be simmering down as neither side can afford a full blown conflict. Now Saudi Arabia is close to claiming that Khashoggi’s death was caused by rogue operatives, a statement that would mean that the Kingdom does not bear any responsibility for what happened to the Washington Post columnist.
The markets are already assuming a no-conflict resolution and Brent oil is trading lower at $80.17 while WTI is back at $71.22. British defence firm BAE Systems (LON:BAES) has also bounced back from losses made yesterday and is trading up 1.96%, although it has yet to recover the ground lost since the start of the Khashoggi Affair.
Bellway (LON:BWY)
Bellway Homes has posted another sturdy result that comfortably meets market expectations for profits, margins and dividends.
As expected, margins have come off a little as house prices fall. But all up the strong profit performance is emblematic of the solid fundamentals underpinning the UK housing construction market.
Investors clearly remain concerned that the market may have peaked as interest rates rise. But at an average of around 2.5%, two-year fixed-rate mortgage are still tantalisingly cheap by historic standards.
Bears looking for signs the market is slowing won't be able to find much evidence in Bellway's current trading figures, which indicate demand remains resilient.
Cost pressures loom as a major challenge for the industry, especially if a hard Brexit triggers an exodus of construction workers. For its part, Bellway has introduced some novel tweeks to its home design template that are helping it contain costs well for now.
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