Europe
After seeing the FTSE100 post its biggest loss since early November yesterday we’ve seen a modest stabilisation, as a slightly weaker pound has helped prompt a modest rebound, while markets elsewhere in Europe, have been rather more mixed, with the French CAC40 underperforming markedly.
The weaker pound does appear to showing some benefits to Burberry’s recent numbers with a recovery in Asian demand, particularly in China which has seen an increase in broader retail sales data recently, helping also boost revenues.
The company has done well from Chinese tourists or daigou coming to the UK, and buying luxury items in bulk spending their money, and then shipping the goods back.
No such joy for publishing giant Pearson (LON:PSON) which has seen over 25% wiped off its share price after the company cut profit guidance by £180m for 2017 as it continues its battle to bring costs down, and boost profits.
The British publisher derives nearly 63% of all sales from the American education market, and the sharp slide in the pound has still not managed to cover up falling sales as the industry moves towards digital publishing. So significant is this news to investors, coupled with the dividend cut that the share price has fallen back to levels last seen in 2009, below 600p with the fall being its biggest one day move in over a decade.
In an effort to at least maintain some sort of dividend the company has announced its intention to sell-off its stake in the world’s biggest book publisher Penguin Random House, whose titles include Game of Thrones and the Harry Potter series, and focus more exclusively on the struggling education market, which would appear to have all the hallmarks of selling the family silver, to buy yourself some time.
This management belief that selling off the best parts of your business to focus on the weakest part does seem to be a strange decision given the large scale changes being seen in the education market. The company will need more than a sprinkling of Harry Potter magic if it hopes to turn the business around by selling off the best bits, better to suspend the dividend and put the extra cash to much better use, while investing more in the digital parts of the business. The damage to the share price from doing that could not be much worse than what we’ve seen today.
To coin an episode from Game of Thrones, the Winds of Winter really are blowing and CEO John Fallon has some explaining to do to shareholders.
US
US markets opened slightly higher today, helped by some better than expected bank earnings numbers.
The fairly positive US banking earnings season has continued today with another bumper report from Goldman Sachs (NYSE:GS). Like its peers, trading activity showed a significant pick-up in the days after the US election, while the steepening of the yield curve in anticipation of future US rate rises also helped.
Revenues were up across the board while earnings per share came in at $5.08c well above the $4.82c expected.
Citigroup (NYSE:C), on the other hand saw revenues come in light, though it did beat expectations on the top line, showing profits of $1.14c a share, above the $1.12c expected.
On the data front the latest inflation numbers for December showed that despite the higher US dollar inflationary pressure has continued to build within the US economy, while investors will be looking keenly towards tonight’s speech by Fed chief Janet Yellen, for any further clues as to how the Fed’s thinking on what is likely to happen with the US economy over the next few months.
FX
The US dollar has bounced back today after yesterday’s Trump inspired plunge, with the pound sliding back the most after yesterday’s sharp rebound.
The continued improvement in UK economic data hasn’t really offered that much support for sterling, despite wages continuing to rise faster than inflation, against another drop in the unemployment numbers.
While no one is suggesting that the trend for a weaker pound has changed in the short term, yesterday’s face ripping short squeeze has made traders a little bit apprehensive about driving the pound aggressively back down again, and that in itself could see it drift higher over the coming days.
The latest US CPI inflation numbers have showed that rising prices aren’t just a UK problem but a more global problem, with core prices rising 2.2% over the last 12 months, slightly higher than expected, and it is this that is helping the US dollar index rebound after five days of declines.
With Fed chief Janet Yellen due to speak later the recent sell off has prompted some light buyers to come back in.
In Canada, interest rates were left unchanged at 0.5%
Commodities
A firmer US dollar, along with comments from IEA executive director Fatih Birol, that further rises in oil prices will trigger higher output from US shale producers and that in reducing supply OPEC will merely see their market share diminish, has seen oil prices drop sharply.
Gold prices have also seen a modest decline from eight week highs as a firmer US dollar prompts some profit taking; particularly given that Fed Chief Janet Yellen is due to speak later today in San Francisco, shortly after the publication of the latest Beige Book economic survey.
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