What to Watch: European stocks hit record high, Brexit hits Compass, and OnThe Beach's Thomas Cook ad splurge

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A toy bull stands in front of the chart of Germany's share index DAX at the stock exchange in Frankfurt. Photo: Daniel Roland/AFP via Getty Images

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

European stocks hit record high

European stocks hit new highs on Thursday, as China moved to cut tariffs on the US and fears about the coronavirus epidemic continued to retreat.

The Euro Stoxx 600 (EXSA.DE), which tracks the largest listed companies across Europe, rose 0.4% to a new all-time high on Thursday morning.

The FTSE 100 (^FTSE) opened flat, while the DAX (^GDAXI) was up 0.7% in Frankfurt and the CAC 40 (^FCHI) in Paris was up 0.7%.

Investors pointed to China’s cut to US tariffs overnight and receding fears about coronavirus.

“While China continues to be stricken by the coronavirus, signs of de-escalation in its trade war with the US could be more relevant to the markets in the long term – particularly if yesterday’s reports of a potential vaccine for the outbreak prove accurate,” said Russ Mould, investment director at stockbroker AJ Bell.

China’s tariff cuts significantly boosted stocks in Asia overnight. The Shanghai Composite (000001.SS) added 1.7% on mainland China, the Hong Kong Hang Seng (^HSI) rose 2.6% and Japan’s Nikkei (^N225) closed up 2.3%.

US futures were pointing to another positive open later today. S&P 500 futures (ES=F) were up 0.3%, Dow Jones Industrial Average futures (YM=F) were up 0.4%, and Nasdaq futures (NQ=F) were up 0.5%.

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Royal Mail shares hit record low

Shares in the Royal Mail (RMG.L) fell by almost 10% on Thursday to a new record low, as the group warned that the industrial relations environment and UK economic uncertainty could prompt continued losses in one of its key divisions.

The company bemoaned the decision of the Communication Workers Union (CWU) decision to ballot its members for strike action, saying that it could delay progress on its turnaround plan.

"We are disappointed that the CWU has issued a timeline for a ballot of its members for industrial action. We stand ready to invest £1.8bn to modernise and grow in the UK,” the Royal Mail said in a Thursday trading update.

The 500-year-old group said that the strikes and potential for delays to the plan, as well as “continued economic uncertainty” could mean that its UK parcels, international, and letters (UKPIL) business will be loss-making in its 2020/21 financial year.

‘Dire’ German manufacturing slump

Industrial orders in Europe’s largest economy were down by 2.1% in December, the biggest decline since February 2019 and the worst monthly performance since 2008 for the sector.

According to data released on Thursday by the federal economy ministry, new orders fell in eight out of the last 12 months, and manufacturing companies are facing a “subdued” outlook in 2020.

A combination of Brexit uncertainty and trade conflict hit the manufacturing industry, the backbone of the export-driven German economy.

Orders from abroad were down by 4.5% in December from the month before. Demand from Germany’s eurozone neighbours plunged by almost 14% in the last month of the year, from November. A 1.4% rise in domestic orders was not enough to offset the general drop.

Brexit hits Compass

Catering firm Compass (CPG.L) has warned that the impact of Brexit on the pound will shave £61m ($79m) off earnings this year.

Compass also warned it had seen “deteriorating business and consumer confidence” across Europe and said it was cutting costs in response.

Despite this, the world’s largest catering firm posted a 5.3% rise in revenues for the three months to 31 December and reaffirmed forecasts for the year.

“We have had an encouraging start to the year and our outlook for 2020 remains unchanged,” the company said. Shares rose 2.8%.

On The Beach’s Thomas Cook ad splurge

Travel group On The Beach (OTB.L) has more than doubled it advertising spending in response to the “unprecedented opportunity” presented by the collapse of rival Thomas Cook.

The company said in a statement release ahead of its annual general meeting later today that it expects the ad splurge to start to pay off later this year. However, it said the price of holidays had gone up due to Thomas Cook’s collapse and the Boeing 737 MAX issues, which both reduced capacity.

“The actions we have taken in the first four months of the new financial year have accelerated our market share gain and mean we are well prepared to take advantage of capacity returning into the market,” chief executive Simon Cooper said.

Chancellor’s spending spree will only have ‘modest’ impact

The government’s planned spending spree will only have a “modest” effect on UK growth, according to a leading independent research institute.

The National Institute of Economic and Social Research (NIESR) said on Thursday that it expects UK GDP to grow by just 1.5% this year and next, unchanged from 2019’s growth rates.

The forecast comes despite plans to spend billions of public money on “levelling up regions” in a bid to boost growth.

Chancellor Sajid Javid is set to deliver the new government’s first budget in March and is expected to announced billions of pounds of new investment in infrastructure and skills training. Javid told the Financial Times last month he wants the spending spree to boost growth to between 2.7% and 2.8% per year.

However, NIESR said: “Additional public investment of up to around £20 billion per year is unlikely to have more than a modest impact on productivity and is not expected to offset the negative effect of Brexit.”