European shares were lifted by the freshly announced US-Canada trade deal but the FTSE moved against the grain, dragged down by airlines and the stronger pound.
Ryanair’s reminder to the market
Though Irish budget airline Ryanair surprised the market by cutting its revenue expectations by 12% this year much of the reasoning behind the cut was already known to investors. Oil prices have surged to their highest level since 2014, rising at a much faster pace than ticket prices. Ryanair, which has also been embroiled in labour disputes in Germany, Belgium and the Netherlands recently, has spent an additional €480 million on oil purchased this year. Most of the budget airlines are facing the same pressures and are seeing investors walk away from their shares. Even EasyJet which managed to pick up additional passengers from Ryanair’s cancelled flights lost 5.25% on the day. British Airways parent International Consolidated Airlines also saw shares decline but at a more moderate scale.
Sterling boosted by Irish border deal
This was never going to be a quiet week for sterling as the Conservative Party gathers for its annual conference in Birmingham. The news started with the not entirely believable comments from Chancellor Philip Hammond that the UK is equipped to handle a no-deal Brexit and continued with PM Theresa May’s plans to compromise on the Irish border issue in order to reach a Brexit agreement. The former did little to move the currency market but the later boosted sterling by 0.38% against the euro and 0.06% against the dollar before it lost some ground against the greenback.
USMCA, the new NAFTA
The dollar, however, weakened against the Canadian dollar which was boosted by Canada’s freshly minted trade deal with the US. The deal with the slightly less elegant name of United States-Mexico-Canada Agreement, or USMCA, will replace the existing NAFTA and will give the US access to the Canadian dairy market while capping Canada's car exports to its southern neighbour. Taken as a sign that the US will be open to finding resolutions to its other ongoing trade disputes the deal prompted rallies across the US markets and caused the DJIA to climb 250 points.
Oil at $83
The oil market continues to position itself for the fallout of US sanctions against Iran in November but is possibly overacting given that the bulk of Iranian oil is sold to Asian countries. The biggest buyers, China, India and Turkey have already declared open opposition to the US and will continue buying the country’s oil. To make the threat of sanctions even more academic there is a loophole that allows European countries to continue buying Iranian oil if they request a sanctions waiver. Once those are granted the actual reduction of Iranian exports might prove minimal.
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