Market Summary: German Inflation, Unresolved Brexit Issues, Premier Foods’ and Vodafone’ Earnings

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European stocks higher

European markets are all looking perky this morning despite a 600-point drop in the Dow Jones Industrial Average late Monday. In London, positive company news from Melrose Industries and Experian lifted the index higher.

In contrast, US stocks were spooked by a stronger dollar hurting the big multinationals and a sharp decline in oil prices while a 7.46% drop in Goldman Sachs shares also didn’t help. Some of the moves were exaggerated by thinner volumes than usual as the bond market was closed for Veterans Day Monday.

German inflation hits a 10-year high

German inflation is now at 2.5%, the highest level in ten years. Much of it has to do with a nearly 9% increase in oil prices in October and an even sharper jump in heating oil – that’s why it is possibly too soon to read gloom into the inflation numbers given that oil prices have pulled back significantly in November and are unlikely to rise at the same pace given that the bulk of the price action had to do with concerns over Iranian sanctions. Nevertheless, Germany’s consumer price data is adding to the overall increase in harmonized EU consumer prices which now stand at 2.4% and will push the European Central Bank towards a tighter monetary policy. The euro’s reaction was mixed, it lost some ground against the pound, but it held up against the greenback.

Unresolved Brexit issues continue to rumble 

While politicians remain woefully unable to reach any serious agreement on Brexit this fluid situation is continuing to hit the UK property and retail sectors. The country’s largest listed property developer Land Securities Group saw its net asset value per share drop in the first half of this year because of the retail sector’s troubles, notably large-scale shop closures. The company manages the Bluewater shopping centre but is now looking at residential development rather than retail space. However, given that house sales and house prices are slowing down, particularly in London and its commuter belt, this may not provide the solution the company is hoping for. Stocks in property firms were among the biggest FTSE fallers this morning, with Taylor Wimpey, Barratt Developments and Berkeley Group Holdings the hardest hit.

Premier Foods appears to have caved the demands of activist investors

Assets other than Ambrosia could be destined for the chopping block, now that Premier Foods appears to have caved to the demands of activist investors. Among them could be Batchelors, which key investor Oasis has already singled out a possible sale candidate. To be sure, letting go of Batchelors would be a painful process for the board, given management’s efforts to revitalise the noodle brand are gaining traction. They’d at least want to see a fat offer emerge before letting go of a business that generated revenue growth of 6.8% in the first half.

Darby can take credit for getting overall group sales growing more consistently and roughly halving Premier Foods’ debt pile since he took the reins in 2013. But investors weren’t easily going to forget the rejection of the McCormick bid, especially with Premier’s shares still languishing below 40p more than two years’ later.

Vodafone’s dividend freeze

A dividend freeze was always on the cards from Vodafone, so today’s news isn’t entirely surprising and not the end of the world for a stock that was yielding almost 9%. The upgraded free cash flow guidance and fresh efforts announced today to trim overheads offer investors some comfort that a dividend cut isn’t coming any time soon.

But the longer-term outlook for Vodafone’s dividend is far from certain. Two of Vodafone’s biggest bugbears, Italy and Spain, are continuing to cause pain. There was little improvement seen in Italy during the second quarter and the performance of the Spanish business deteriorated, with sales there sliding 7.2%. With heavy capital investment in 5G spectrum looming, Vodafone will need to make good on its pledges to improve its performance in problem markets before a sustained recovery in the share price can really take hold.