Financial market research and analysis

Stocks drift lower while awaiting US tax bill

Markets started out on the back foot and drifted for most of the afternoon. The dip-buyers that have stepped in throughout the year failed to materialise, fearing the ticking clock on US tax reform. Until tax reform is signed off, end of year profit-taking and fear about a US government shutdown could impair the march to new records in stock markets. We suspect tax deal holdouts including former Presidential hopeful Marco Rubio will probably give way eventually to allow a last minute deal and a nice Santa rally.

The Retail apocalypse reaches H&M

The Retail apocalypse is taking no prisoners. Not even H&M, the world’s second-largest retailer that until today had only reported two quarterly sales declines in the past decade. Shares of H&M crashed as much as 15% in a sign shareholders were jumping ship, fearing the end of an era. The violent share price reaction reflects both shareholder shock at the unexpected fall in sales as well as disappointment at management’s plan to resolve it.

We think H&M are several steps behind competitors in their online offering so the store closures will only harm revenues. It may take an acquisition, perhaps of an online fast-fashion rival such as Boohoo.com to avert a longer stretch of falling sales at H&M. The decline in the Stoxx Retail Index ranks retail as the worst performing sector in Europe this year.

Sky and BT content teamwork

Shares of both Sky and BT gained ground today after announcing a ground-breaking new deal to share channels. Sky shares have not made up the losses from yesterday as the Disney deal with 21^st Century Fox overshadows the company’s future. Investors are reacting positively because the extra subscriptions resulting from the deal should be a near-term positive for both firms. Only in the next 12 months will it be clear which of BT or Sky sees the most contract cancellations as customers choose one or the other.

Sky is reluctantly accepting BT onto its team so that together they can face off against powerful new streaming enemies Amazon and Netflix. Amazon outbid Sky to win exclusive ATP tennis rights in August. It’s only a matter of time before either Amazon or another steaming firm like Netflix win rights to prized assets like the Premier League. Although we think the deal makes sense for Sky to help keep its customers, it will probably hasten ‘cord cutting’ where customers dump their satellite TV subscriptions.

Pound traders sell the Phase two

The pound looked surprisingly vulnerable to an afternoon bout of dollar strength. Given the government’s successful move to phase two of Brexit talks Sterling should have held up better than other currencies, but it didn’t. GBPUSD fell over 100 pips from highs of the day. The pound has been the victim of a ‘sell the fact’ reaction to the conclusion of phase one of Brexit talks.

A post-FOMC comeback for gold?

Gold prices rallied off the lows as the dollar fell back following the Fed’s decision to raise rates. The markets don’t buy the Fed’s optimism and plans for three rate hikes in 2018. That leaves two scenarios we think could support gold. 1) The Fed keeps hiking despite low inflation and risks inverting the yield curve (an omen for a recession) which would prompt investors to look for havens. 2) The Fed revises down its dot-plot forecast for rate hikes, sending investors out of the dollar and into gold. In the short-term, former support at $1265 per oz may offer strong resistance to further gains.

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