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European indices open higher after fresh record high on Wall Street

The strength of the US labour market surprised to the upside and drove Wall Street to fresh record highs on Friday, whilst European indices also finished higher. The S&P 500 rallied 1% to finish at 3,066.91. The Nasdaq also closed at a record high. There are concerns aplenty over the state of the world economy but hope springs eternal that a trade deal can be done.  

There are a lot of Fed speakers this week, which suggests they are out in force to guide the market about what to expect in terms of rates and the QE that is not QE. Speakers are likely to ram home the data-dependent outlook of the Fed. 

Noises on trade are quite positive. US commerce secretary Wilbur Ross says he’s optimistic the US and China will ink this phase one deal.  

We saw a strong beat for the US labour market report with nonfarm payrolls up 128k in October, well ahead of the 85k expected, whilst there were upward revisions to the prior two months. The August print was revised up 51k to 219k and the September number was hiked by 44k to 180k. The 3-month average at 176k against the 223k average in 2018. The revisions are really the bright spot as it indicates August and September prints were nowhere near as weak as we thought. 

European indices rose on the open with the DAX at 13,060, and the FTSE 100 seen around 7331 at send time. Momentum is moving higher.

FX markets look pretty steady at the open, with EURUSD at 1.1170 and GBPUSD around 1.2930. More interesting is USDJPY, which is holding at 108.30.

Crude prices have rallied on hopes of a trade deal, with WTI up at $56. Latest CFTC data shows speculators increasing their net long positioning. Gold was supported at $1509 with speculative longs increased to 276.5k from 259k.

Ryanair profits steady  

One return, seats and luggage are extra. Ryanair numbers are decidedly more economy class than first. There are demand concerns, weaker fares and costs are rising, but Ryanair is getting better at selling extras like speedy boarding – ancillary revenues were up 28%, which is supporting profits. 

First half revenue grew 11% to €5.39bn, with profits flat at €1.15bn. But fares were down 5%, due to the weak consumer demand in the UK and overcapacity in Germany and Austria. Ryanair is facing headwinds from lower fares, higher fuel bills and rising staff costs. The fuel bill rose 22% (+€289m) to €1.59bn, on +11% traffic growth.  Ex-fuel unit costs rose 2%, largely because of higher staff costs, increased pilot pay and higher than expected crew ratios. Faced with these headwinds Ryanair will need to cut costs. 

The outlook remains cautious. Full year traffic will grow 8% to 153m but management expects a slightly better fare environment than last winter. Ancillary revenues will grow ahead of traffic growth, supporting full-year revenue per guest growth of 2% to 3%. The full year fuel bill will rise by €450m. Ryanair narrowed its full year guidance to a new range of €800m to €900m, with all the usual caveats about security events, Brexit and fares. 

Delivery of the Boeing 737 MAX aircraft won’t happen until March or April 2020. Ryanair will have half the MAX planes they thought they would have, which means traffic growth will fall to around 3% for summer 2020 against 7% previously expected. As iterated in July, there may be more strife in European short haul before we get a shakeout. Further sector consolidation is certain. Indeed only today IAG said it has acquired Air Europa for €1 billion. The deal will boost IAG’s Madrid hub. In 2018, Air Europa generated revenue of €2.1 billion and an operating profit of €100 million, carrying 11.8m passengers.

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