European indices rise, Ryanair profits steady
European indices open higher after fresh record high on
The strength of the US labour market surprised to the
upside and drove Wall Street to fresh record highs on Friday, whilst
European indices also finished higher. The S&P 500 rallied 1%
to finish at 3,066.91. The Nasdaq also closed at a record high. There are
concerns aplenty over the state of the world economy but hope springs eternal
that a trade deal can be done.
There are a lot of Fed speakers this week, which suggests
they are out in force to guide the market about what to expect in terms of
rates and the QE that is not QE. Speakers are likely to ram home the
data-dependent outlook of the Fed.
Noises on trade are quite positive. US commerce
secretary Wilbur Ross says he’s optimistic the US and China will ink this phase
We saw a strong beat for the US labour market report with
nonfarm payrolls up 128k in October, well ahead of the 85k expected, whilst
there were upward revisions to the prior two months. The August print was
revised up 51k to 219k and the September number was hiked by 44k to 180k. The
3-month average at 176k against the 223k average in 2018. The revisions are
really the bright spot as it indicates August and September prints were nowhere
near as weak as we thought.
European indices rose on the open with the DAX at 13,060,
and the FTSE 100 seen around 7331 at send time. Momentum is moving higher.
FX markets look pretty steady at
the open, with EURUSD at 1.1170 and GBPUSD around 1.2930. More
interesting is USDJPY, which is holding at 108.30.
Crude prices have rallied on hopes of a trade deal, with WTI up at $56. Latest CFTC data shows speculators increasing their net long positioning. Gold was supported at $1509 with speculative longs increased to 276.5k from 259k.
Ryanair profits steady
One return, seats and luggage are extra. Ryanair numbers
are decidedly more economy class than first. There are demand concerns, weaker
fares and costs are rising, but Ryanair is getting better at selling extras
like speedy boarding – ancillary revenues were up 28%, which is supporting
First half revenue grew 11% to €5.39bn, with profits flat
at €1.15bn. But fares were down 5%, due to the weak consumer demand in the
UK and overcapacity in Germany and Austria. Ryanair is facing headwinds from
lower fares, higher fuel bills and rising staff costs. The fuel bill rose 22%
(+€289m) to €1.59bn, on +11% traffic growth. Ex-fuel unit costs rose
2%, largely because of higher staff costs, increased pilot pay and higher than
expected crew ratios. Faced with these headwinds Ryanair will need to cut
The outlook remains cautious. Full year traffic will grow
8% to 153m but management expects a slightly better fare environment than last
winter. Ancillary revenues will grow ahead of traffic growth, supporting
full-year revenue per guest growth of 2% to 3%. The full year fuel bill will
rise by €450m. Ryanair narrowed its full year guidance to a new range of €800m
to €900m, with all the usual caveats about security events, Brexit and fares.
Delivery of the Boeing 737 MAX aircraft won’t happen until
March or April 2020. Ryanair will have half the MAX planes they thought they
would have, which means traffic growth will fall to around 3% for
summer 2020 against 7% previously expected. As iterated in July, there may be
more strife in European short haul before we get a shakeout. Further sector
consolidation is certain. Indeed only today IAG
said it has acquired Air Europa for €1 billion. The deal will boost
IAG’s Madrid hub. In 2018, Air Europa generated revenue of €2.1 billion and an
operating profit of €100 million, carrying 11.8m passengers.