Markets slide again on Trump fears, ahead of UK retail sales – business live

Royal Mail profits fall but shares rise

Royal Mail is also among the leading risers despite a fall in profits and a warning that letter volumes would continue to drop.

Annual profits fell 6% to £712m, after the uncertainty over Brexit hit marketing and business mail, while it also continues to face growing competition for parcel delivery from the likes of Amazon. It is also in talks with unions about plans to close its defined benefit pension scheme.

Chief executive Moya Greene said the company had come through a challenging period well, and with cost cutting and more efficient investment spending, it would maintain “a progressive dividend policy.”

Richard Hunter, head of research at Wilson King Investment Management, said:

Royal Mail has registered delivery of a solid set of numbers, underpinned by a strong contribution from the overseas unit.

The general trend to which the group continues to react is becoming established – a letters and cards market in terminal decline, offset by the growth in the parcel delivery space as online shopping strengthens its grip on consumer behaviour. Within the numbers, there are a number of promising signs, such as the investment programme having peaked, cost savings still in focus, an improvement to the earnings per share metric and a short-term boost expected by general election mailings. Meanwhile, the dividend yield of 5.2% is extremely attractive in the current environment and remains possible given the group’s cashflow. Elsewhere, recent moves to alter the pension scheme should provide financial solace further out.

Challenges inevitably remain with the current uncertainty within UK PLC as the Brexit negotiations unfold impacting expenditure decisions, whilst the entrance of other large players into the lucrative parcels arena will pile further pressure on trading conditions. In addition, whilst there are some positive signals, progress will need to be maintained since the letters business revenue must be replaced in due course.

Even so, the general direction of travel is encouraging. The shares have had a difficult year, dipping 14% over the last 12 months and remaining some way off their highs of over £6 in January 2014 following the initial success of the IPO. The company is, nonetheless, focussing on those areas which are particularly troublesome, and the consensus of the shares as a hold may come under review after these results.

Royal Mail profits fall Photograph: Yui Mok/PA

3.08am EDT03:08

FTSE 100 falls at open

As expected European markets have slipped back in early trading, following the slump on Wall Street and overnight declines in Asia, on the latest Trump developments.

The FTSE 100 has fallen around 45 points or 0.6% while Germany’s Dax opened 0.2% lower and France’s Cac down 0.1%.

Among the risers is Burberry, up 1.7% after the luxury goods group issued a positive outlook statement despite a 21% fall in full year pretax profits stripping out the benefits of the falling pound. The drop was in line with expectations and came after weak demand in the US.

Investors were cheered by news the group planned a new £300m buyback to be completed in 2018.

Burberry DK88 bag launch in New York at the start of May Photograph: Altman/WWD/REX/Shutterstock

Updated
at 3.18am EDT

2.54am EDT02:54

Ahead of the UK retail sales, the pound is have a mixed time.

Against the dollar it is currently down 0.15% at $1.2950 but it has edged up 0.14% against the euro to €1.1635, reversing the previous day’s trend. FXTM research analyst Lukman Otunuga said:

April’s UK retail sales report… will be vital in providing some insight over the behaviour of consumers amid Brexit developments. With wage growth lagging behind inflation, the sales data may come under scrutiny for any signs of falling wages impacting consumer confidence.

If retail sales fail to meet expectations and follow the same pattern as they did in March, concerns are likely to heighten over the sustainability of the UK’s consumer-driven economic growth. Although markets are expecting retail sales to rebound in April to 1% due to the Easter holiday, this still may not be convincing enough to brush away Brexit concerns. The Bank of England has already warned of a consumer spending squeeze while the uncertainty blanketing Brexit continues to weigh on sentiment.

Updated
at 2.57am EDT

2.41am EDT02:41

Agenda: Trump effect continues, UK retail sales expected to recover

Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It was only a couple of days ago that all the talk was of new stock market peaks and low volatility. But thanks to the escalating controversy over Donald Trump’s firing of FBI director James Comey and even talk of possible impeachment, the mood has changed dramatically.

US markets suffered their biggest one day fall since September, with the Dow Jones Industrial Average down 372 points, while the dollar lost all the gains it made since Trump was elected president. The US currency and stock markets had been boosted by Trump’s promises of tax reforms and infrastructure spending, but his current problems mean these proposals are on the backburner. And the prospect of a rate rise by the US Federal Reserve next month, almost a given a couple of days ago, now looks more unlikely amid a potential political crisis. Michael Hewson, chief market analyst at CMC Markets UK, said:

With the VIX languishing at multi year lows only a couple of days ago it was perhaps inevitable that the low volatility of the past few weeks would in all likelihood end rather abruptly, with the only unknown being as to what the catalyst might be.

As it turns out it was events in Washington DC that delivered investors the kick in their complacency that many had been warning about, as stock markets and the US dollar fell sharply, while safe haven assets like gold surged….

Having waited months for evidence that we would eventually see something resembling a reform program and fiscal stimulus to justify the rally in the US dollar and stock markets since November, investors finally lost patience amid a selling frenzy with US markets posting their biggest one day loss since September last year.

The big question now is whether this turns out to be the start along a road to an impeachment process or whether this is another bump in the road.

The risks to global markets from Trump’s woes is considerable, given how far they have climbed on the back of his long awaited measures to stimulate the US economy. Ipek Ozkardeskaya, senior market analyst at London Capital Group, said:

The past six-month’s reflation rally would face severe reversal risks. If the markets were to retrace the Trump-reflation gains, this would trigger a decent ‘deflation’ squeeze. A quick glance to recent stock price history could give an indication of the risks. The Dow Jones rallied from 17,480 to above 21,100 following Donald Trump’s victory on November 9 election; this is roughly a 21% rise…

Unfortunately, the US stocks are not the only ones concerned. The global Trumpflation virus contaminated the major stock markets across the globe. Since November 9, the German DAX rallied more than 26%, Europe’s Stoxx 600 gained past 12%, the Japanese Nikkei stepped up to 24%, the Australian ASX 200 soared nearly 18% before the sell-off started at the beginning of May and the UK’s FTSE rose by more than 12%. Even the Brazilian stocks believed in the reflation story for a moment and added 22% between December and February. Of course, Brazil has got its own problems. Brazil is plunging back to a bribery crisis concerning its newly elected President Michel Temer – following the former President Dilma Rousseff’s impeachment last year.

Overnight the Nikkei followed Wall Street’s lead lower, ending down 1.32%, while European markets are also expected to open on the back foot:

IGSquawk
(@IGSquawk)

Our European opening calls:$FTSE 7456 -0.63%
$DAX 12584 -0.37%
$CAC 5292 -0.50%$IBEX 10743 -0.40%$MIB 21213 -0.33%

May 18, 2017

Meanwhile the fall in the dollar has benefited the pound, but that has disguised a general weakness for the UK currency which has fallen back against the euro.

But UK retail sales figures due shortly could well give the pound some support. After a poor month in March, when retail sales fell 1.8%, they are expected to recover some lost ground. CMC’s Hewson explains:

While March was a surprisingly bad month, it could merely been a case of consumers holding back ahead of Easter, as all the indicators seen in recent data from food retailers suggested that shoppers recovered some of their mojo in April. The latest BRC retail sales numbers from last week showed that, and today’s retail sales numbers are expected to show a rise of 1.2%.

There are also a host of company results out today – typically for a Thursday. We will be following all the major events of the day.

Updated
at 2.45am EDT