Daily market update: US-China tensions, Lloyds, Unilever, Tesla

US-China relations don’t look to be in the best place ahead of Trump’s visit to Asia.

Talk of new restrictions on goods that either contain or are made with US software being sold to China would suggest the Trump administration is playing hard ball, sending a message to Xi Jinping that the US will not be pushed around.

Trump has form in threatening something but then changing his mind, and China might simply see any new tech-related restrictions as just being hot air. Investors were initially taken aback at the reports, with Chinese shares down for much of today’s session, but they rallied in late trading to recover losses.

The FTSE 100 moved 0.1% higher as a stronger oil price lifted two of the index’s biggest and most influential constituents, Shell and BP. Oil jumped after Trump imposed sanctions on two Russian producers, implying disruption to supplies.

Rat-catcher Rentokil surged after saying its US operations were in a much better place. The company had previously suffered from slower than expected growth in North America, causing investors to question if the 2022 acquisition of US pest control firm Terminix was ill-timed. A new game plan appears to be working, and Rentokil is now more upbeat on the region.

Lloyds

The car finance scandal may have sent profit into reverse but there was enough underlying good news from Lloyds to keep the share price ticking over.

Year-to-date the stock is up more than 50% despite taking extra provisions to cover this issue. Given the company had already disclosed an extra £800 million hit linked to mis-selling, there was nothing new to shock investors. In fact, pre-tax profit was better than feared.

In the background, the business is making progress with the plan instituted by CEO Charlie Nunn in 2022 to generate a greater proportion of income which is not closely linked to interest rates. The goal is to make earnings more reliable and less cyclical.

Among the key tenets of this strategy is an expanding presence in wealth management. To this end, Lloyds recently assumed full control of its Schroders Personal Wealth joint venture which is set to be rebranded as Lloyds Wealth.

With Barclays and Lloyds both offering fairly robust third-quarter updates, the UK banks’ reporting season so far seems to have helped salve concern about the US private credit situation which rocked the industry earlier this month.

Unilever

Any concern or disquiet about a delay to Unilever’s ice cream spin-off will have been eased by the company’s latest update.

Underlying sales growth came in ahead of expectations although there may be some disappointment that the company has left full-year guidance unchanged despite better-than-expected third-quarter trading.

A strong showing from its personal care and beauty product roster helped Unilever put its best face on. There was also evidence of pricing power and improved demand in North America.

Under recently appointed CEO Fernando Fernandez the company is focusing on reducing its cost base and bolstering its margins. The ice cream demerger is not the only evidence of streamlining under Fernandez with the company also offloading brands like The Vegetarian Butcher.

Exiting ice cream should boost profitability so investors will hope the demerger delay resulting from the US government shutdown isn’t prolonged. The seasonal nature of ice cream and the higher storage and logistics costs associated with it mean Unilever no longer sees these products as a good fit for the wider group.

Unilever is still saying the process will be completed before the end of the year but like a toddler whose ice cream scoop is teetering out of its cone, it’s not something over which it has much control.

Tesla

Dan Coatsworth, Head of Markets at AJ Bell, comments:

Elon Musk has outspoken views on many things, but he didn’t have much to say on the fact Tesla’s Q3 results missed earnings expectations for the fourth quarter in a row. Instead, the analyst conference call was the usual big picture stuff, talking about the world of tomorrow and Tesla’s role within it.

Sales were propped up by a rush to buy electric vehicles before a US tax credit disappeared. However, profits disappointed amid increased costs, including spending on AI as it focuses more on robotics. If sales were effectively brought forward, does that imply its fourth quarter period will be miserable?

Tesla made its mark with electric vehicles and expanded in the battery space but has grander visions to ‘bring AI into the real world’.

Musk is increasingly distracted by other things – be it politics, space rockets, or something else – and Tesla’s board are keen to retain their leader, hence a proposal to dish out eye-watering rewards if he meets certain targets.

Musk is looking at the situation through a different lens. He wants to ensure that he can retain control of the business with bold ambitions and not be forced out. That’s why he took a pot shot at proxy advisers ISS and Glass Lewis, calling them ‘corporate terrorists’ amid criticism of the CEO’s $1 trillion proposed pay deal.

ISS recently advised Tesla shareholders to vote against the package, saying there were ‘unmitigated concerns surrounding the special award’s magnitude and design’. Glass Lewis also urged a ‘no’ vote. Musk argued in the conference call that he didn’t feel comfortable ‘building a robot army’ and then being ousted because of recommendations from proxy advisers. Musk is never one to mince his words.