Good morning everyone,
US stocks climbed again on Thursday and are now up close to 4% over the past month despite the Iran crisis and a tough spell at home for retailer share prices. As tensions eased between the US and Iran, attention turned back to US-China trade negotiations. China announced that its chief trade negotiator will travel to the US to sign the phase one deal next week, which is the first time China has publicly confirmed that it will be signing. Trump has indicated that the deal will be signed on or shortly after January 15th. As part of the deal China has committed to a minimum of $200bn in increased purchases from the US over the next two years.
Once it is over the line, undoubtedly Trump will hail this as a victory going into his re-election campaign, although he also indicated that the “phase two” negotiations would begin straight away. Trump did warn that this would take some time and likely conclude after November’s election.
Mixed fortunes on the UK high street
Two updates from two very different retailers are likely to give investors plenty to mull over this morning, after both JD Sports Fashion and discounter B&M updated on their Christmas sales.
JD Sports said in an update that “against a backdrop of widely reported retail challenges in the Group’s core UK market, it is encouraging to report positive like-for-like trends in the Group’s global Sports Fashion fascias, particularly overseas.”. It also guided that its results would be in the upper quartile of expectations when it reports in February. Shares are actually negative this morning which could possibly be attributed to profit taking seeing as the price has increased by 110% in the last year.
Meanwhile B&M European Bargains, the discount store, reported store revenue growth of 8.8%, and like-for-like growth of 0.3%. Despite the modest growth, this came in below analysts’ estimates and shares are trading down almost 9% this morning. The toys and confectionery categories dragged the numbers down with the home departments continuing to perform. Echoing JD Sports, it said it had experienced “a difficult UK retail environment with reduced shopper footfall and political uncertainty”. However, the company noted that it had experienced a positive start to January but warned on adverse weather conditions potentially having an impact.
Apple hits new record high on China growth
The trade deal wasn’t the only China news making headlines on Thursday — iPhone sales were up 18% in December versus the same month a year earlier, sending the stock 2.1% higher. Apple faces a tough market in China, competing against local, low cost phone makers. Despite this, it has identified China as a key growth area and as such will be very encouraged by the progress these numbers show.
Tech stocks lead the way into new decade
Driven by a flurry of analyst notes as the CES (Consumer Electronics Show) conference shines a spotlight on tech, the tech heavy Nasdaq Composite has been leading the main US indices in 2020. It gained 0.8% on Thursday, taking its year-to-date return to 2.6%, after a score of upgrades for key constituents. Among them, semiconductor firm AMD gained 2.4% after a Mizuho analyst upgraded their rating on the stock. AMD has been part of a broader rally in chip companies and has gained close to 25% over the past month, and more than 70% since the start of October. On the downside, pharmacy retailer Walgreens continued to fall after missing earnings results earlier in the week, dropping 2.1% on Thursday and taking its weekly loss past 7%. Retailers including Kohl’s and J.C. Penney fell after reporting poor holiday sales numbers, losing 6.5% and 10.8% from their share prices respectively.
S&P 500: +0.7% Thursday, +1.4% YTD
Dow Jones Industrial Average: +0.7% Thursday, +1.5% YTD
Nasdaq Composite: +0.8% Thursday, +2.6% YTD
Sterling slips as Carney gives downbeat update
Bank of England governor Mark Carney’s first speech of the year sent the pound lower against the dollar, after he gave a pessimistic overview of the UK’s economic state of affairs. Carney said the Monetary Policy Committee was debating “the relative merits of near-term stimulus”, indicating that there was “sufficient headroom” to double the £60bn of asset purchases by the bank to stimulate growth. This was somewhat unexpected seeing as Mark Carney has usually distanced himself from additional stimulus and negative rates in contrast to his European counterparts.
The FTSE 100 climbed 0.3%, with names such as Vodafone Group, Rolls Royce and the London Stock Exchange leading the way with 3% share price gains apiece. Airlines were also winners on Thursday, after the oil price fell back as Iran tensions cooled. British Airways’ parent company International Consolidated Airlines Group gained 2.6%, and easyJet was up 2.2%.
FTSE 100: +0.31% Thursday, +0.74% YTD
FTSE 250: -0.04% Thursday, -1.1% YTD
What to watch
Q4 earnings season kicks into gear next week, when most of the major US banks report, but today is a quiet day in stock specific news. However, it is another busy day in terms of US economic data, with the US Department of Labor publishing its December jobs report. Here are the highlights:
Non-farm payrolls and unemployment rate: Economists polled by Bloomberg are expecting the addition of 160,000 jobs in December, versus a surprise 266,000 in November. The unemployment rate is anticipated to hold steady at 3.5%. If the figures come in around expectations, that would reflect a steady pace of labour market growth, despite the pains faced by the manufacturing sector. Any outperformance would almost certainly be met with a favourable market reaction.
Wage growth: Wage figures will be watched closely too, and some are predicting that this is an area of the report that may produce a positive surprise, as employers compete to attract talent in a market with minimal unemployment. On Thursday, for instance, fast food chain Taco Bell announced plans to trial $100,000 salaries for store managers. Bear in mind that the data for December includes the holiday period, which could affect the numbers.
Ethereum and XRP, have continued to retreat from highs seen earlier this week as tensions between the US and Iran dissipate.
Having touched a high of $145 on Wednesday, Ethereum is back down at $134.90 this morning, whilst XRP has moved from above $0.22 to $0.198.
Bitcoin has also pulled back, albeit less aggressively. Having peaked at $8,400 mid-week, the coin is now trading back at $7,685.
We have also seen the bitcoin hash rate hit record highs this week, the hash rate measuring the computing power behind the mining of bitcoin. In the past there has been correlation between hash rate and price, although not always, the hash rate continued to rise throughout 2018 when the market was declining.
It’s a bit of a reach to say the hash rate is responsible for the price rise we saw as opposed to the US-Iran tensions and other technical factors, especially when the pullback has also coincided with the de-escalation of conflict, but it’s a plausible contributor.
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