Steady start for European equities despite the partial US government shutdown, the first in 17 years. On Monday, financial markets crumbled as investors booked profits on the combo of political drama in the US and Italy together with month-end and quarter-end position squaring. This morning, the risk tone improves somewhat as investors take the view that a partial shutdown, if resolved quickly, will do little damage to the overall health of the US economy. That does however mean that we will need to hear the right sounds out of Washington to feel confident enough that the shutdown will not damage economic growth. US lawmakers failed to bridge their differences over the budget and remain polarised still, leading to the shutdown which sees around 800,000 federal employees sent home on unpaid leave. Republicans and Democrats must find some common ground and tackle their differences in order to formulate a new budget which will raise the debt ceiling. Though this looks hard found at the moment, the market is betting on a deal to be reached in the coming days. What’s more is that this shutdown means Federal Reserve chairman will be more inclined to hold back from tapering quantitative easing at the October policy meeting – in fact, as it stands, the US labour department has closed along with other agencies which means payrolls data will not be complied or released. So, liquidity addicted market participants appear to be relatively sanguine this morning, hoping that this shutdown could go as far as seeing the Fed hold back from tapering all together in 2013. Closer to home, we have PMI manufacturing releases from the euro zone, UK and the US – all of which will be in sharp focus. Corporate views: Wolseley’s FY numbers read as they should; strongly. As expected by many, the company’s US and UK operations are performing much better than Europe, reflecting the recovery in the UK and US construction and housing markets. Headline numbers read well; LFL revenues ahead by 2.9%, EPS of 181.8p versus EPS of 168.4p last year and gross margins ahead of last year’s reading too. This has led the company to raise its dividend for this year and return £300m to investors through a special dividend. Wolseley’s strong balance sheet and exposure to recovering housing markets put the company is a solid position to benefit on the global economic recovery. Unilever meanwhile, tells a different story; the food and beverage giant last night warned on profits, saying sales growth has slowed further in its emerging market operations. The company expects underlying sales growth to come in at 3% versus 3.5% in the Q3 – the company attributes the slowdown in the EM space due the weakening of currencies which was driven by the Fed’s intentions to taper. Traders are now worried that Unilever’s numbers could be the first in a string of Q3 numbers which highlight how capital outflows from the EM could hit corporate profits. ________________________________________ Joe Rundle Head of Trading
Posted on: Tue, 01 Oct 2013 07:38:49 +0000
Trending Topics
Recently Viewed Topics
© 2015