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Morning Market Pulse - Ryanair winces with winter warning

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Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:

 

FTSE 100 called to open +30pts at 6865, extending yesterday’s 6800 bounce, however unable to challenge falling highs resistance at 6880 overnight, keeps it in a falling channel since the Jan rebound highs. Bulls need a break above 6880 to escape the channel. Bears require a breach of 6860 to jeopardize yesterday’s bounce. Watch levels: Bullish 6880, Bearish 6860

 

Calls for a positive open come after a strong showing from Wall St and Asian markets, undaunted by disappointing revenue and subscriber misses from Netflix. US stocks rallied after The WSJ report suggested that Treasury Sec. Mnuchin proposed China tariff relief to encourage Beijing to compromise, though equities pared gains after the Treasury denied making any recommendations.

 

GBP off overnight highs, but still trading best levels since mid-November after The Times reported the DUP may be open to a softer Brexit, including membership of EU customs union. Oil prices higher, with Brent Crude trading around week highs, amidst trade optimism.

 

In corporate news this morning Ryanair cuts full year profits guidance (ex-Lauda)  to €1-1.1bn (from €1.1-1.2bn), citing Winter fares -7% vs -2% guidance, although higher traffic and better unit costs has helped reduce impact; can’t rule out further cuts (fares or guidance) due to Brexit/Security.

 

Rio Tinto FY iron ore production +2% YoY, upper end of guidance. Bauxite -1%, Aluminium -3%, in-line. Copper +33% beat guidance. Targets 2019 iron ore shipments flat to +3.5%, bauxite production +11-17%, but aluminium down 1-7% and Copper -5 to -13%. Shares +0.3% in Australia.

 

Sophos Q3 billings -0.6% YoY, extending slowdown from +6.5% in Q1 and +3.3% in H1  which implied a flat Q2. Cash EBITDA +6.9% but free cash flow -11.3%. Expects Q3 trends to continue into Q4, with a modest decline in FY billings.

 

Halma acquires Business Marketers Group, trading as Rath Communications, a provider of emergency communication systems for Areas of Refuge in the USA, for $42.4m ($16m annual revenues), expected to be immediately earnings accretive.

 

Greencoat Q4 NAV +7%, Generation on budget, power prices above budget, but FY generation 6% below budget (low wind), but cash generation on budget thanks to higher prices; interim dividend flat at 1.69p; increased 2019 target dividend by 3.6% to 6.94p, in-line with RPI.

 

In focus today will be UK Retail Sales (9:30am), bookending updates from many key FTSE retailers this month. Economists expect monthly sales -0.6% in December ex-fuel (-0.8% headline). If confirmed, Black Friday may be the culprit, with consumer spending pulled forward to November which posted growth of 1.2%. Annual growth ex-Fuel still expected +3.9% in Dec vs. Nov +3.8%.

 

In the US, Industrial Production (2:15pm) is seen slowing in Dec (+0.2% MoM vs +0.6% prev.). Manufacturing Production, meanwhile, resumes growth after a flat November. Uni. of Michigan Consumer Sentiment (3pm) looks likely to take a hit from the US Government Shutdown (now 28 days long), with all components forecast lower in January.

 

The Fed’s Williams (2:05pm, hawkish, voter) discusses US economic outlook and monetary policy (New Jersey Bankers Association Economic Leadership Forum, with audience Q&A. G20 Finance Ministers and Central Bank Governor deputies are in Tokyo for a 2-day meeting, in early preparations for this summer’s G20 summit. The ECB’s Cœuré represents the Eurozone.

 

In terms of overnight/weekend risk, note  that we get China GDP, Industrial Production and Retail Sales early on Monday morning. Expectations are for another batch of slower growth, vindicating Beijing’s recent fresh stimulus to boost the economy. Watch FTSE Miners.

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