Sharp fall in Chinese exports adds to global economy concerns; MPs expected to vote against Brexit deal today, but Sterling strengthens

15 January 2019

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Market news

European markets are holding relatively still this morning after a poor start to the week yesterday for equities, borne out of further concerns over the strength of the global economy and a lacklustre start to the US earnings season. ‘Safe haven’ assets were in demand, strengthening the yen and pushing gold higher. 

Last Friday contained similar sentiment but global equities were higher overall last week amid hope of more positive US-China trade talks and in spite of an ongoing government shutdown in Washington. 

Focus today is centred on UK parliament’s ‘meaningful vote’ on Theresa May’s Brexit deal. Despite the prime minister’s internal warnings of the potential consequences, namely a Labour government or no Brexit at all, MPs are expected to vote against the deal in large numbers. Parliament is gaining more control of the Brexit process and may try to delay Brexit, while Jeremy Corbyn has threatened a no confidence vote. 

Sterling, however, strengthened overnight, rising above $1.29 for the first time in nine weeks. Speculators seem to like the chance of an extension to Article 50. The dollar index meanwhile hit a three-month low last week. 

Economic data from China put pressure on equities and commodities, as it was revealed that exports suffered their largest monthly fall in two years, increasing concern over GDP outlook. Global indicators suggest that export weakness will continue this year and that December’s underperformance was not just because of the trade war. 

The Organisation for Economic Co-operation and Development also contributed to gloomy sentiment. The intergovernmental organisation noted “easing growth momentum in most major economies” and its well-respected indicators point towards fading growth in the eurozone. It said that growth was more stable in China and Japan.

After a truncated rally last week, crude oil prices slipped over 2% yesterday, while gold, up around 7% since November, ticked further up. 

Economic data*

Share	Closing Values at 14/1/19	Year high	Year low
FTSE 100	6,855	7,904	6,537
FTSEurofirst	1,367	1,588	1,291
DAX	10,856	13,597	10,279
DJ Industrial Average	23,910	26,952	21,713
S&P 500	2,583	2,931	2,351
NASDAQ	6,906	8,133	6,190
Hang Seng	25,830	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.30	103.01
2 Year	0.82	101.78
5 Year	0.96	99.09
30 Year	1.82	93.85

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.29	-0.19
Euro	1.15	-0.40
Japanese Yen	108.16	0.30
Canadian Dollar	1.33	-0.23

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	58.99	0.54	0.92
Light Crude	50.51	0.42	0.83
Gold LBMA	1,291.69	-2.95	-0.23

* Source: Thomson Reuters

** From previous day close

 

Stock focus

Boohoo has managed to avoid the troubles on the UK high street, raising its full-year profit guidance after strong Christmas sales. The Aim-listed clothes retailer sells affordable fashion aimed at a young demographic. Sales in the UK grew 33% in the last four months of 2018, contributing to a total revenue of £328.2m.
 
JD Sports also managed to outperform rivals over Christmas. Four weeks shy of its full year results, the UK’s biggest sportswear retailer has so far seen like-for-like sales rise by more than 5%. The chain said that it had maintained its pricing strategy whilst others had engaged in excessive discounting.
 
Matalan was one of the many retail companies that engaged in heavy promotions over the Christmas period, a move that increased total revenue but reduced expectations for overall profits. Online sales surged by 33.3% in the last five weeks of the year, but third-quarter earnings fell by 10.9%.
 
The outsourcing company Capita has warned that it expects to make a significant loss on its contract with the Ministry of Defence to recruit soldiers into the British Army. The chief executive blamed the previous management for unrealistic ambitions. Missed targets have incurred financial penalties from the MoD.

Halfords was forced into another profit warning last week, sending shares lower by around 20%. The British retailer of car parts and bicycles blamed the weather and low consumer confidence for its second warning in a year. Shares now dwell over 12% below the price they were floated at 15 years ago.

Shares of Provident Financial have fallen over 20% this morning after the subprime lender said it expected pre-tax profit to be at the lower end of expectations, owing to fewer new account acquisitions in the last quarter of 2018. It’s on track to be the largest daily fall since its profit warning in August 2017.

 

Financial calendar

Date	Category	Country	Event	Reuters poll	Prior estimate
15/01/19	Prices	France	France-Inflation Final - CPI (EU Norm) Final YY	1.90%	2.20%
15/01/19	National Account	Germany	Germany-GDP Calendar - Full Year GDP	1.50%	2.20%
15/01/19	Prices	United States	United States-PPI demand - PPI Final Demand YY	2.50%	2.50%
15/01/19	Surveys & Cyclical	Japan	Japan-Machinery orders - Machinery Orders YY	0.40%	4.50%
16/01/19	Prices	Germany	Germany-Inflation Final - CPI Final YY	1.70%	2.30%
16/01/19	Prices	United Kingdom	United Kingdom-PPI - PPI Input Prices YY NSA	3.50%	5.65%
16/01/19	Consumer Sector	United States	United States-Retail Sales - Retail Sales MM	0.20%	0.20%
17/01/19	Prices	Eurozone	Euro Zone-Inflation - HICP Final YY	1.60%	1.90%
17/01/19	Labour Market	United States	United States-Jobless - Initial Jobless Claims	220%	216%
18/01/19	Consumer Sector	United Kingdom	United Kingdom-Retail Sales - Retail Sales YY	3.60%	3.60%
21/01/19	Consumer Sector	China (Mainland)	China (Mainland)-Activity indicators - Retail Sales YY	8.20%	8.10%
21/01/19	National Account	China (Mainland)	China (Mainland)-GDP - GDP YY	6.40%	6.50%

Source: Thomson Reuters

 

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