Ugly markets, deals to nowhere, EU-US trade war
Investor confidence has crumbled off the back off a couple
of weak US data prints, whilst impeachment talk and geopolitical troubles from
Hong Kong to North Korea are not helping. European investors also battling the
real prospect of a no-deal Brexit and worries about a new tariff war with the
US after the WTO back Washington over the Airbus case.
On the latter, the White House has approved a range of punitive
tariffs of between 10% and 25% on everything from malt whisky to aircraft.
The UK, France and Germany have been targeted (mutters something about the
special relationship). But wait, if EU companies see their US market hit,
does that make the UK export even more important…?
The EU may now retaliate, risking a tit-for-tat tariff war
that we all know will serve no one. US airlines are unhappy as it will raise
the cost of new aircraft they’re already committed to. Delta and JetBlue both
decried the tariffs. Airbus shares are higher – the 10% tariff on aircraft
is well short of what Boeing had demanded.
Markets have decided that manufacturing is in recession –
further escalation of tariffs won’t help.
And with global manufacturing in crisis, today’s services
PMIs are utterly crucial to shore up sentiment. The big one will be the ISM
print for the US at 3pm. UK numbers are due at 09:30. European final services
PMIs are released between 8 and 9.
The reaction to the manufacturing numbers earlier this week
has been deeper and more sustained than expected. Yesterday’s weak private jobs
print compounded the situation and raises fears that tomorrow’s NFPs will
reveal even further slowdown in hiring.
However, as we’ve been saying for some time, these were
markets set up for disappointment. I just didn’t think that manufacturing print
would be sufficient to spook the steeds. We may yet see stabilisation once the
Fed comes into play.
European shares are mixed – the FTSE is down a touch in
early trade, while the CAC has risen a shade. Investors are looking for
direction after the horror show yesterday. DAX shut for a holiday. Signs of
stabilisation if not recovery.
The FTSE 100 suffered its worst single day plunge
since January 2016. The blue chips dropped 3.23% to 7,122.54 as just about
everything was sold.
The S&P 500 skidded 1.8% lower to 2,887 on strong
breadth. The Dow shipped 500 points.
Asian markets were weaker as they joined in the rout. Tokyo
slid c2%. China is closed for a holiday – they’ll have an almighty hangover
when they reopen.
US Treasury yields have been wanging around all over the
place the last few weeks and now we’re back to 1.585% on 10s. That’s helped gold,
which buoyed by a degree of haven flow and weaker yields, has completed its
round trip back to the $1500 level, having been sold off sharply.
On Brexit, Boris has offered his ‘deal’ to the EU for
inspection. But this is a deal to nowhere, and won’t be enough. The bridge
to gap is too far. Boris is Brian Horrocks trying to make the Hail Mary pass
and save Johnny Frost and his boys. Unfortunately, it’s just a bridge too far.
GBPUSD has driven up
beyond 1.23 as the offer was not flatly rejected out of hand by the EU and some
MPs came on board. If it’s really full and final then we move on to the next
phase and preparations for no-deal. The Benn bill comes to fore again – how
does Boris the chess pieces, how does Parliament react? Lots of risk for
sterling, a retest of 1.19 before the week is out is not unfeasible. At present
it’s retraced to the comfort of 1.2270, resting on its 50day moving average.
Ted Baker is going through the wringer
here. We noted in June at the time of the last profits warning that these
warnings seldom come alone and that, following the March warning, a third was
not unlikely. And so today the company is reporting a pre-tax loss of £23m,
down from a profit of £24.5m last year. Group revenues slipped 2.5% on a
constant currency basis. Ongoing
consumer uncertainty in a number of key markets and elevated
levels of promotional activity have been blamed, creating extremely difficult
trading conditions during the financial year to date. As we noted, profits warnings never
come alone, and often in threes.
Imperial Brands – CEO Alison Cooper is
to step down. It’s been a tough journey for her in the last year or so and the
latest warning was probably the final nail in the coffin. Competitors have
stolen a march. Only last week Imperial lowered its
full-year revenue guidance to +2% from a previous guidance of 4%. Its vaping
business is not growing as quickly as expected – regulatory trouble in the US
is the main problem. Back in May the company was already flagging that
next generation products were not doing as well in the US as hoped. Cooper is
the latest in a string of CEO departures from the FTSE. Not sure it signals
anything, but there is something of a changing of the guard happening right
H&M – shares in H&M are up over 3% after
posting a 25% increase in profits. Solid summer performance with collections
well received and a move away from discounting. Sales +8%.