Having seen Theresa May secure overwhelming majority support for a June 8th General Election, international traders also regained confidence enough to start unloading some the safe-haven investments they had accumulated in recent days. Gold stocks, for example, moved sharply lower following a slump in the precious metal's price for June delivery, while Treasuries gave ground sufficient for the 10-year yield to rise back to 2.209%. Not that its now 'risk-off' by any means. With investor focus presently at least focussed on blue-chip corporate results, US equities closed modestly mixed overnight. The Dow Jones found itself pressurised by tumbling IBM Corp. shares, which fell as much as 5.8% to their lowest level in over four months on quarterlies detailing weaker than expected revenues. This contrasted with upbeat earnings from Morgan Stanley a day after Goldman Sachs had left investors disappointed, while the NASDAQ found support from Yahoo, which is in the process of selling its core internet business to Verizon, delivering results ahead of estimates. The energy sector also slumped 1.4%, its fifth drop in six sessions, as oil prices settled nearly 4% lower following a smaller than expected decline in US crude stocks. With concerns of geopolitical tensions being temporarily put to the back of traders' minds, the US$ bounced convincingly off its five-month lows early Thursday morning, dismissing Trump's efforts to talk the currency down and reflecting instead on a Fed Futures indicating a 48.5% chance of another rate hike at the June FOMC meeting. London equities stood out from the bulk of European markets on Wednesday to end lower, weighted down by the re-strengthened Pound along with disappointment from a few large caps, including Burberry (BRBY.L) which sank almost 8% after a cautionary statement. The FTSE100 was also knocked by weak base and precious metals stocks which, despite good performances from supermarkets, travel companies and housebuilders providing some respite, means the index has now given back all its gains for 2017. Elsewhere, Europe was helped by new opinion polls confirming centrist independent Emmanuel Macron is retaining his lead ahead of Sunday's first round voting in the French Presidential Election, which was enough to edge the Stoxx Europe 600 up by 0.29%. Confidence here will be supported further this morning, following top ECB officials cautioning against reducing monetary stimulus too soon, suggesting the Central Bank will hold course at its April 26th - 27th policy meeting despite early signs of improvement in the eurozone economy. Asia equities recovered much of their losses from the previous session. Broad gains were led by the Nikkei, recording its fourth daily gain as the region continued to benefit from safety-first Yen investment, with the ASX and Hang Seng making positive similar moves, leaving only the highly volatile Shanghai Composite to close fractionally lower as locals responded to a new government clampdown on speculative trading. The UK today is only expecting a speech in Washington from the Governor of the Bank of England, Mark Carney, while macro releases due from the EU include April Consumer Confidence data. The US is scheduled to detail Initial Jobless and the Philadelphia Fed Manufacturing Survey, while the Treasury Secretary, Steve Mnuchin, is also due to make a speech. UK corporates due to publish earnings or trading updates include Acacia Mining (LON:ACA), Debenhams (LON:DEB), Unilever (LON:ULVR), Polymetal International (LON:POLY), Moneysupermarkets.com (MONY.L), Go-Ahead Group (LON:GOG) and Man Group (LON:EMG). London is expected to continue its decline of recent days, with the FTSE100 seen down 15 to 20 points in opening trade."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.46% lower at 7,114.36 whilst the FTSE AIM All-Share index was unchanged at 940.29. In continental Europe, the CAC-40 finished up 0.27% at 5,003.73 whilst the DAX was 0.13% higher at 12,016.45.
Wall Street
In New York last night, the Dow Jones fell 0.58% to 20,404.49, the S&P-500 slipped 0.17% to 2,338.17 and the Nasdaq gained 0.23% to stand at 5,863.04.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.42% to 18,509.34 and the Hang Seng had gained 0.4% to 23,921.39.
Headlines
Tesco to offload opticians' business to Vision Express
Tesco (LON:TSCO) is to sell its in-store optician business in the UK and Republic of Ireland to Vision Express, who will continue to run the eyeglass outlets. Tesco - which says the sale will "simplify" its business - has 206 optical stores in the UK and three in Ireland, as well as an online outlet. It employs about 1,500 staff, who will be transferred to Vision Express, owned by Dutch-based Grand Vision. The deal is expected to be completed this year, pending regulatory approval. No financial details about the sale have been given. Tesco UK chief executive Matt Davies said: "This allows us to further simplify and strengthen our UK business and ensures our customers are still able to enjoy high quality eye care services from Vision Express in our larger stores." Tesco Opticians, which opened its first opticians in Peterborough in 1998, had revenues of about £90m in 2016. Tesco has been selling off businesses including restaurant chain Giraffe, Dobbies Garden Centres and music streaming service Blinkbox. Vision Express has 389 stores in the UK and about 4,500 staff.
Oil
In early trade today, WTI crude was up 0.28% to $50.58/bbl and Brent was up 0.38% to $53.13/bbl.
Company news
Burberry Group (LON:BRBY, 1,566.00p) – Buy
Burberry, a UK based international luxury fashion and beauty brand, yesterday provided a trading update for the 6 months ended 31 March 2017 ('H2 FY2017'). During the period, total revenue fell by -1% to £1,607m (up +14% at reported currency basis), against the comparative period (H2 FY2016). Retail revenue advanced by +3% to £1,268m at underlying basis (up +19% at reported currency basis), while on a like-for-like ('LFL') basis, sales increased by +3%. Wholesale revenue fell by -13% to £327m (down -1% at currency basis), which was in line with guidance, with majority of the decline coming from a rationalisation of distribution in key markets and distributor de-stocking in Beauty. Licensing revenue declined by -38% to £12m, in line with guidance, primarily reflecting the planned expiry of the Japanese licences. On the operational front, the Group announced strategic partnership in Beauty with Coty, subject to regulatory approvals. The Group has also completed £100m of announced £150m share buyback programme, while confirmed that it is on track to deliver planned cost savings of £20m in FY2017 increasing to at least £100m annualised in FY2019. Burberry's CEO (and Chief Creative Officer), Christopher Bailey, commented "The outperformance of fashion and the strong customer response to new products underline our renewed creative momentum. While we have more to do, as we build on our progress so far, we remain confident about Burberry's prospects in the longer term."
Our view: Burberry has delivered good result for the H2 FY2017 amid uncertain environment. Its shares fell sharply yesterday as total revenue of £1.61bn came slightly below the consensus Analysts' estimate of £1.62bn. Furthermore, the LFL sales growth has slowed down in the Q4 to +2% (Q3: +3%) which resulted in nervous investors to sell. The Group said Asia Pacific region (+1% underlying revenue) was driven by the strong growth in Mainland China and double-digit growth in EMEIA (+5% underlying revenue) was led by exceptional performance in the UK. The positive performance was offset by the challenging environment in Americas which declined by -10% underlying revenue. Its Accessories outperformed (+4% underlying revenue), with mid-teens percentage growth in leather goods. The Group did not change its expectation for FY2017 adjusted pre-tax profit at FY2016 rates and said movement in exchange rate has boosted its reported adjusted retail/wholesale profit by £130m (previously announced £120m). Looking ahead, in FY2018, the Group said exchange rate at 31 March spot rates, it expects adverse movement in reported adjusted pre-tax profit of around £10m (previously announced c.£20m-£30m favourable), but the majority of this is expected to be offset by an improvement in underlying performance. We see yesterday's sell off was over-reaction. The recovery in mainland China and UK's continuous exceptional growth fuelled by both travelling luxury customers and domestic customers is a positive sign. While the recent strength in Sterling means foreign currency translation will cause adverse effect in FY2018, the Group is confident to absolve this through ongoing productivity and efficiency initiatives, along with improvement in underlying performance. The shares are valued at FY2017E and FY2018E P/E multiple of 21.0x and 19.4x along with dividend yield of 2.3% and 2.5% respectively. Given reiterated full year outlook with long-term confidence, Beaufort repeats its Buy rating on the shares with a price target of 1,920p.