Market commentary: Will job cuts do the trick?

European stocks extended their losses on Wednesday, as weak earnings and fluctuating oil prices added further stress to the markets. In Asia, stocks finished sharply lower too, as two consecutive sessions of declines in oil prices erased most of last week’s gains.

On the earnings front, LVMH, the world’s biggest luxury group, reported its fourth quarter sales. This was a positive figure for the company, which led to stocks such as Christian Dior, Hermes and Burberry all posting solid gains. However, Swiss watchmaker Swatch found itself in negative territory. The company attributed the strength of the Swiss franc as the reason for the slump.

In the automobile industry, Ford is attempting to boost company profits and save about $200 million a year. The company is offering a “voluntary separation programme”, where job cutbacks will hit Ford’s roughly 10,000 managers in Germany and Britain. Ford returned to profit in 2015, helped by a 10% gain in vehicle sales. This was the first time the company saw profit after four straight years of losses. Shares were trading 3% lower, at $11.16 on Wednesday.

Staying in the automobile industry, Toyota is recalling around 320,000 vehicles. The reason for this, an airbag defect due to the improper programming of air bag controls, could result in airbags opening when they are not needed. The news came not long after Toyota revealed that January 2016 sales were down 4.7%. Toyota shares were also down on the day, falling to 114.22 – a drop of 4%.

Yahoo! is another company under pressure, and considering cutting its workforce in an attempt to boost profits. CEO Marissa Mayer announced that the company would consider “strategic alternatives” to its core internet business, in an attempt to put the company back on the path of growth. Still, Mayer admitted she’ll consider putting the company’s core assets up for sale, signalling that she may have run out of options for turning around Yahoo! Yahoo! shares fell as much as 8% – the biggest drop since August, and, as the company’s performance is deteriorating, shareholders are becoming increasingly impatient, calling for leadership changes or an outright sale.

Banking sector declines

Investors aren’t the only ones running for safely as the market tumbles and the economy wobbles. Businesses, too, are indicating an unwillingness to take on risk, as loan demand has declined for the first time in about four years. Chief US economist Paul Ashworth said in a note to clients: “The weakening in demand for business loads suggests that the growth rate of actual commercial and industrial lending will grind to a halt this year.”

Italian lenders led declines among European peers. Worries over the bad loan portfolio of Italian banks dragged Banca Popolare di Milano down as much as 9%, before it recovered some losses. Similarly, shares in Spanish bank BBVA were down 3% on the day.

Lloyds is another company to confirm it will axe 1,755 members of staff as part of a three-year turnaround strategy announced in 2014. Furthermore, the bank will be closing 26 branches as part of a plan by CEO Antonio Horta-Osoria to cut costs as he prepares the bank for privatisation.

This article was issued by Rebecca Naudi, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.