European markets and US futures are trading higher while there are some serious concerns about this rally because of lack of any volume.
European stock futures are trading higher as the dollar eased off from its highs and the US Treasury yields started to consolidate. Among global equity markets, it is the Australian equity markets which deserve the most attention after staging a stellar performance. Aussie equity markets recorded the biggest jump in more than two years; the rally was supported by the financial sector.
US markets also closed higher yesterday and still holding on to their strong gains. The S&P 500 is up 8.70% year-to-date, the NASDAQ index is up 10.3% YTD and the Dow Jones is up 8.20% YTD. There are some genuine concerns that the markets are moving higher without any strong volume behind them and a trend like this doesn't end well.
In terms of economic numbers, we have Spanish, German, Italian and Eurozone’s services PMI number due shortly. All the numbers are expected to come in a little soft than their previous reading. The stagnant growth in Italy may keep the number at 50 or below. Disappointment from last week around the German-French number may have some spillover effect today as well. As for the UK, the services PMI is also expected to be soft and the UK’s car industry is to remain under focus after the breaking news from Nissan which is no longer going to have another plant in the UK.
BP’s number came too strong and that is purely due to the strong discipline the firm has around capital spending. BP has made it clear that it has the abilities to beat its rival in an environment when the market conditions for the oil market aren’t that favourable. This is achieved through the effective deployment of capital. To put things in perspective, this number jumped to 11.2% against the reading of 5.8% back in 2017.
Picking up the high-quality projects is the key and this strategy has paid well. BP reported 4Q adjust net $3.48 billion against the forecast of $2.64 billion, the debt gearing was at 30.3%. The biggest challenge for BP is that the debt levels are still much anchored and this number becomes more of a concern when you look at the competitor sheet. This debt gearing number should not be increased by the company’s own defined limits and given that the frim’s debt gearing crossed above 30%, it is not an encouraging sign.
In other stock news, Alphabet Inc, reported thinner profit and this is because of the higher spending in their cloud business and expanding YouTube. The company fourth quarter’s spending jumped 80 per cent mounting the total of $6.85 billion and this squeezed its operating margin by 3 percent. The operating margin number came in at 21% while the previous reading was 24%. Of course, the hopes are that the increase in capital expenditure which is mainly in the cloud space is going to pay off and it will inflate the bottom line numbers.