Financial market research and analysis

FTSE recoups some losses

European shares were mixed on Wednesday as investors digested the implications for future growth under a hard Brexit. Trading on the FTSE was muted the day after suffering its biggest loss in six months. The British pound, drifting lower in a correction of its biggest daily gain since 2008, helped the UK equity benchmark to modest gains.

We view the move in the British pound following Prime Minister’s speech as a game-changer and as such don’t anticipate a near-term resumption of the record winning streak for the FTSE 100. UK multinationals, like Burberry, still stand to benefit from a weak pound. The shift in sentiment in the pound means that gains could now be more concentrated in specific companies and industries, rather than the entire UK stock market.

A textbook crash in Pearson shares

Today saw a textbook crash in Pearson shares. The publishing giant lost over a quarter of its market cap after it issued another profit warning and unexpectedly cut the dividend and announced plans to sell its stake in Penguin Random House. Publishing in general is suffering at the hands of the Internet and Pearson is struggling to come up with a solution.

We view the visceral reaction from shareholders as a response to Pearson chief executive John Fallon. Mr Fallon seems unable to navigate Pearson through the structural shift taking place in both the publishing and US further education markets. At this stage, Pearson shares can only begin a recovery under new leadership.

Kris Wu’s Burberry shoppers in China

Shares of Burberry were top risers on the FTSE 100 after the fashion retailer posted strong fourth quarter sales numbers. A combination of bargain-hunting tourists coming to Britain to take advantage of a weak pound and a social-media / Korean popstar-led marketing campaign in China appear to have done the trick.

These results confirm the thesis that pushed Burberry shares up 30% in the last six months. An improved growth outlook in China, a weak pound and perhaps the new management team have been Burberry’s saving grace after a difficult 18 months of falling sales.

HSBC, the bank who cried wolf

Investors reacted favourably to chief executive Stuart Gulliver indicating HSBC will shift jobs to France depending on Brexit negotiations. The statement comes shortly after chairman Douglas Flint told MPs the bank was considering moving 1000 investment banking jobs to Paris. It’s a good thing for the industry that leading banks are thinking proactively about the changes Brexit will bring is a clear positive.

Still, it is a thinly veiled threat. “Looking” at shifting jobs to France is very reminiscent of HSBC “reviewing” keeping its headquarters in London. Inevitably Brexit will mean some jobs move from London to the continent, but jobs in Europe are also likely to come onshore. We believe the banks will realign staffing across Britain and the EU, but that there will be no clear flow of jobs in either direction.

Currency traders overlook wage data

Data showing UK wages rose faster than expected in the three months through November was overlooked by currency traders ahead of a speech from Federal Reserve chair Janet Yellen. Ms Yellen will address the Commonwealth Club in San Francisco. Commentary from Yellen will be under extra scrutiny in the context of Donald Trump calling the US dollar “too strong”.

We believe that Donald Trump’s comment that the US dollar is “too strong” has been taken out of context. Trump’s assertion that the dollar is too strong was while talking about a deliberate devaluation of the yuan by Chinese authorities. In essence Trump was talking about USD/CNH not DXY. If Trump were to clarify his comments in the next few days, this dollar correction could end abruptly. 

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