Coronavirus vaccine hopes and China tariff cuts lift FTSE, and Royal Mail’s problems get worse

“The FTSE 100 was back above 7,500 for the first time in a couple of weeks as news of cuts to Chinese tariffs on US goods helped put investors in a sunnier mood. Overnight Asian markets enjoyed strong gains with Hong Kong’s Hang Seng index rising more than 2.5%.

“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.

“Miners are particularly sensitive to Chinese fortunes thanks to the country’s heavy consumption of commodities and this sector helped lead the FTSE higher. A warm reception for the latest update from catering giant Compass also supported the index.

“The next focus for the market, alongside the latest developments on the coronavirus, is likely to be US jobs numbers tomorrow afternoon,” says AJ Bell Investment Director Russ Mould.

Royal Mail

“Royal Mail’s future is pinned on making improvements to productivity through increased automation and arguably better staff morale. It seems to be struggling on both fronts.

“Productivity gains for the first nine months of its financial year stand at 1.3% and are forecast to be 1.5% for the full year, well below its 2% target. Union CWU is also preparing another ballet of its members for industrial action, with the threat of more strikes suggesting staff aren’t happy with their jobs.

“A warning that the UK business could be loss-making in the next financial year is the cherry on top of a very unappetising cake.

“To be fair, Royal Mail isn’t the only one in its sector having a hard time. FedEx and UPS have both issued disappointing updates in recent months due to weak global economic conditions, increased costs and tough competition forcing down prices.

“Royal Mail has to reshape its business for the future while also operating against a difficult backdrop. The renewed threat of strikes could make customers think twice about wanting to use its delivery services, particularly as there are plenty of alternative providers in the market. Companies and individuals want to use a reliable service and may turn their back on Royal Mail if they think their parcel won’t be delivered on time.

“The huge task ahead to reinvent Royal Mail is likely to be a very drawn-out transformation with no guarantees that there will be a leaner, meaner business at the end of it. Shareholders have already seen the value of their investment dwindle in recent years and many analysts increasingly believe the shares could fall even further.

“Ultimately Royal Mail has become as frustrating a company for investors as queuing up for hours on a Saturday morning to retrieve a parcel from the sorting office.”

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