Stocks higher as trade optimism continues, Deere drops

Stocks are in positive territory heading into the close as traders are hopeful the US-China trade talks will bring about an agreement in the next few weeks.

Europe

The discussions are in the ‘final throes’, according to President Trump, and from the Chinese side, it was reported they were ‘resolving relevant problems’. Traders are cautious not to get ahead of themselves too much as nothing is a done deal until everything is signed. The US are still scheduled to impose fresh tariffs on Chinese imports next month, but with the way things are going, we might have phase one of the trade deal signed by then ,and traders are buying stocks with that expectation.

Marston’s swung to a full-year pre-tax loss of £20 million, from a profit that exceeded £54 million last year. The company saw a surge in its costs in relation to interest rate swaps and that caused the firm to register a loss. Underlying profit edged lower to 2.88% to £101 million. Margins cooled to 15.2% from 16%, which was driven by the 5.9% increase in operating costs. The pub group plans to step up its asset disposal scheme as it previously stated its intension to sell-off £70 million worth of assets, and that target has been raised to £150 million. Given the company’s liabilities exceed £1.5 billion, the group is likely to use the funds raised to reduce its debt.

British American Tobacco issued an upbeat second-half pre-close statement. Even though the vaping sector has taken a hit in terms of reputation, the group still expects full-year constant currency adjusted revenue growth to be at the top half of the 3-5% long-term forecast. A number of years ago the vaping sector was tipped to be the next big, and it was supposed to offset the fall in traditional tobacco products. A string of deaths relating to vaping has shaken the industry. The share price of British American Tobacco has fallen more than 40% since the highs of 2017, so it is possible much of the negative news regarding to vaping has priced-in.

The senior management of Future disposed of assets through a stock placing. In total, 3.1 million shares were sold-off at a discounted price, hence why the stock is lower today. Some of the management selling shares included, the CEO and CFO. Recently the share price hit an all-time high so the move shouldn’t trigger alarm bells with traders.

US

The S&P 500 has posted another record high on trade optimism as well as economic data. The economy grew by 2.1% in the second-quarter, according to the second-estimate reading, which was a nice surprise seeing the initial reading was 1.9%. Keep in mind the economy grew by 2% in the second-quarter. The Fed cut rates three times since June, and it is fair to say we have yet to see the full impact of the cuts, so the final quarter might be in for a lift. Jobless claims dipped to 213,000 from the 227,000. Personal income was 0.0% last month, while personal consumption increased by 0.3% meeting forecasts. The updates paint a positive picture of the US economy.

Deere shares are lower today after the company issued a bearish guidance. The group predicts that next year will see a 5-10% fall in agricultural equipment revenue, while revenue from construction machinery could fall as much as 15%. The group blamed ‘lingering trade tensions’ for the poor outlook in relation to farming equipment. It is surprising the firm has such as negative forecast for the construction business seeing as the latest US building permits as well as new home sales reports have been the strongest in 12 years.

Guess posted largely mixed third-quarter numbers. EPS came in at 22 cents, topping forecasts of 18 cents. Revenue for the three month edged up by 1.7% on an annual basis to $615.9 million, which narrowly missed forecasts. Same store sales in the US dropped by 3%, and total US revenue fell by 4.9%. To make matters worse, the group lowered its revenue guidance too. The stock initially sold-off, but now it has rallied.

FX

The US dollar index has pushed higher on the back of the largely positive economic reports. At the latest Fed meeting, the central bank suggested they won’t be moving rates for some time, so today’s reports add weight to the view the US central bank have halted their series of rate cuts.

EUR/USD is lower on account of the firmer greenback as well as the German import data – which showed that prices slipped by 0.1%. The nudge lower in price wasn’t huge, but it underlines the soft demand in Europe’s largest economy.

Commodities

Gold has been hit by a combination of a firmer the US dollar as well as a risk on attitude by traders. The asset is quoted in US dollars so there has traditionally been an inverse relationship between the two markets. Dealers are taking on more risk by buying into European and US stocks, so there is less demand for the asset.

WTI and Brent crude sold-off on the back of the Energy Information Administration report. The update showed that US oil stockpiles increased by 1.57 million barrels, while traders were expecting a draw of 418,000 barrels. The gasoline update shocked traders even more so as I grew jumped by 5.13 million barrels, while the consensus estimate was only for an increase of 1.22 million barrels.

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