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It’s not been a great morning for Laura Ashley.
The homeware and clothing group — famous for its floral prints in the 1980s – hit shareholders with another profit warning.
Earnings almost halved in the second half of 2017, as my colleague Julie Kollewe explains:
Seán Anglim, Laura Ashley’s finance director, talked of an “overall toughening of the market” with like-for-like sales declines of 4.4% in furniture and 3.9% in decorating products such as fabrics, curtains and wallpaper.
Shares slumped by 18% at one stage – or by 1.1p to a princely 5p. Despite being a well-known brand, the company’s only worth around £44m these days.
RBC: Rees-Mogg might be bad for the pound
The pound has now risen to its highest level against the US dollar in two weeks, at $1.4070.
Analysts at Royal Bank of Canada think sterling is benefitting from signs that Theresa May’s grip on power is becoming a little less fragile.
A recent poll put the Conservative party four points ahead of Labour, even though May’s ministers has been struggling to reach agreement on Brexit among themselves (let alone with the rest of the European Union…).
Adam Cole of RBC warns, though, that sterling could suffer if May is replaced by Tory backbencher Jacob Rees-Mogg. He’s one of the most vocal Brexiteers – whose popularity has been rising in recent months as he has voiced opposition to a soft exit from the EU.
We note that prediction markets now have Labour and the Conservatives neck-and-neck as likely to be the largest party after the next election. At the turn of the year, there was a 10% point gap in the implied probabilities (55/45 in favour of Labour).
The probability of this government serving its full five years has also risen to a new high (36%), though the risk of an earlier election is still high.
Both of these developments have probably offered some support to GBP (sterling), though we also note that arch-Eurosceptic Rees-Mogg is now priced as most likely PM after May (ahead of Corbyn) and his hard Brexit line is probably less constructive for the currency.
Here’s our latest profile on the member for North East Somerset….
at 4.49am EST
US dollar under the cosh again
The pound and the euro are both rallying against the US dollar today.
Sterling is up half a cent at $1.4047, while the euro has gained 0.3% to $1.249.
You might have expected the dollar to benefit from yesterday’s rise in US inflation (as a rise in interest rates makes it more profitable to hold dollars).
Kit Juckes of Societe Generale says other factors are in play, though:
A slightly higher-than-expected US CPI print was enough to get 10-year bond yields up to 2.92%, while equity and commodity prices both rallied sharply and the Vix [volatility index] fell back under 20.
The dollar, on the other hand, got absolutely no support from any of this.
A reminder if we needed that the better the global economic story, the worse it is for the dollar. The biggest single factor undermining the dollar this year has been the improvement in the global economy – a more balanced economic recovery drags investment away from the US and towards more interesting markets.
European markets open higher
European stock markets are gaining ground this morning, as traders shake off their recent jitters.
In London, the FTSE 100 has gained around 37 points or 0.5%, to 7250.
Mining firm Anglo American and investment group Old Mutual are leading the risers, up over 3%. They’re both involved in South Africa, so are getting a boost from president Zuma’s resignation.
The French stock market has jumped 1%, while Germany’s DAX is up 0.6%.
But what about those inflation worries? Shouldn’t yesterday’s strong consumer prices data from America have spooked the markets, as it paves the way for higher interest rates?
Apparently not. That’s because separate data from Wednesday showing a drop in US retail sales has persuaded investors that central bankers will tread cautiously.
Naeem Aslam of Think Markets explains:
A soft retail number simply gives the message that consumers have started to ease off from their spending or they are not digging deep into their pockets.
A sensible approach would be that the Fed isn’t going to increase the interest rate when they can clearly see that the retail data was soft.
A solid day’s trading in Asia:
South Africa’s stock market is surging this morning, after president Jacob Zuma resigned.
Zuma ended a long battle with his own party by stepping down last night, before a no confidence vote.
Deputy president Cyril Ramaphosa is now lined up to replace Zuma, whose tenure has been dogged by allegations of corruption and economic malaise. One of Ramaphosa’s first tasks is to get South Africa’s 2018 budget delivered next week.
Ramaphosa is one of South Africa’s richest men, and investors are hoping that he can turn the country around.
The benchmark Top40 index has jumped by almost 3% today, extending its recent gains:
But… Ramaphosa faces a massive challenge, as my colleague Jason Burke explains:
Cape Town, the country’s second city, is running out of water. According to government statistics, the total number of people living with HIV increased from an estimated 4.72 million in 2002 to 7.03 million by 2016, though the rate of infection is declining.
Unemployment remains at an historic high of 27.7% across the general population, and as high as 68% among young people. Economic growth has been limited in recent years, averaging little more than half the rate of population growth of 1.2%. Zuma’s departure has sent the rand surging and will spur a rush of much-needed foreign investment.
at 3.36am EST
Analyst: It’s a temporary lull
China and South Korea’s stock markets are closed today, as traders celebrate the Lunar New Year.
Trading volumes have been lighter across Asia, which may be aiding the sense of calm in the markets.
But Rob Carnell, chief Asia economist at ING, sounds most unconvinced that this tranquility will last……
“Having just gone through the roller coaster of equity sell-off induced by bond yield rises, I am frankly at a loss to explain what is now happening.
“I can only assume that we are in a temporary lull before the turmoil returns.
at 3.20am EST
The agenda: Markets in risk-on mood again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After last week’s turmoil, investors seem to have rediscovered their appetite for risk.
Asia-Pacific stock markets are rallying across the board, with Japan and Australia both up around 1%.
Associated Press have the details:
Japan’s benchmark Nikkei 225 rose 1.5% to 21,464.98 and Australia’s S&P/ASX 200 climbed 1.2% to 5,909.00. Hong Kong’s Hang Seng advanced 2% to close at 31,115.43 in a half-day trading session.
Indexes in Southeast Asia, New Zealand and India also rose.
European markets are also expected to rise, adding to yesterday’s gains, as the City looks to put recent volatility behind it.
The markets have also shaken off Wednesday’s surprisingly strong inflation data.
As we covered yesterday, shares were briefly hit after US consumer prices jumped by 0.5% last month, but in the end the Dow Jones finished the day up 1%.
Higher inflation raises the pressure on the world’s central bankers, particularly those at the Federal Reserve, to tighten monetary policy by raising interest rates. That would be bad for bond prices, so it’s probably a mistake to assume the markets have calmed down now.
As Jasper Lawler of London Capital Group says:
Whilst the market is showing signs of carving out a bottom and the volatility index (VIX) or fear gauge, has dropped back below 20, after peaking at over 50 just last week, it is unlikely that this is the last we have seen of the volatility as markets claw back these recent losses.
Today, investors will be looking at the latest American weekly unemployment figures, and new data showing how US factories fared last month, and how their prices changed.
Plus, several European Central Bank policymakers are giving speeches today, which might move the markets.
- 8.15am GMT: ECB’s Yves Mersch speaks in Paris
- 10.45am GMT: ECB Peter Praet speaks at the French finance ministry
- 1.30pm GMT: US weekly jobless figures
- 1.30pm GMT: US producer prices data for January
- 2.15pm GMT: US industrial production for January
at 3.01am EST