The summer is not fully here yet but the trade temperature is notching up with the US trade rhetoric becoming more threatening by the day. President Trump has directed his ire at Mexico yet again, threatening to bring in tariffs on the country in early June and to gradually increase them to 25% until Mexico stops illegal immigrants entering the US. Britain is also about to face tough Trump love when the US President comes to London next week as he plans to limit intelligence sharing between the countries if the UK goes ahead with plans to use Huawei to build parts of its 5G network.
European shares have yet to recover from the latest Mexico threat which has caused the FTSE to lose 0.95% and the DAX 1.54%. Unless a miraculous political U-turn materializes later in the day, which is not completely impossible given the US President’s track record, more stock declines are in store when Wall Street opens for trade. The threat to Mexico comes as the US –China trade relations are already deteriorating given China’s threat to restrict exports of the strategically important rare earth minerals which are used in anything from tools to aircraft to weaponry.
Sterling’s two steps forward, two steps back
Sterling has managed to recover from its dip yesterday caused by reports that Germany would veto an extension to the October 31 Brexit deadline unless the UK makes some major changes such as a general election or a second referendum.
The prospect of the latter, however, seems to be fading after Jeremy Corbyn made comments indicating that he is at odds with parts of the Labour leadership over the idea of a second vote. However, the recovery in sterling/dollar has more to do with the dollar’s weakness in the wake of Trump’s latest trade tweets than any inherent strength in sterling which has weakened slightly against the euro.
The sentiment towards the common currency is improving with anticipation that the ECB will spell out the details of its new loan programme for the European banking sector next week.
Wizz Air continues to thrive
Wizz Air (LON:WIZZ) is continuing to cope better than many of its rivals in the European budget airline space as it benefits from the relative strength of emerging economies in Eastern Europe.
While the likes of EasyJet PLC (LON:EZJ) report losses and Ryanair (LON:RYA) downgrades guidance, Wizz Air has eked out a higher profit, even as it rapidly adds new destinations throughout the continent.
Management may have rattled a few investor nerves today by predicting another 'very challenging operating' environment in the year ahead. But the company is still guiding for a solid improvement in net profit.
Sales of extras like food, beverages, luggage and seat selection are growing nicely at Wizz Air, helping to soften the blow of higher fuel prices. Management is also keeping a good lid on other expenses, which fell by almost 1% last financial year.
The cost equation is only set to improve as Wizz Air takes delivery of more fuel-efficient Airbus A320neo aircraft. It also hasn't placed any orders for Boeing (NYSE:BA)'s trouble-plagued 737 MAX, giving it a competitive advantage over companies grappling with the grounding like Ryanair.