What's going on?

Shares of French tire maker Michelin burned rubber on Tuesday, rising 13% after a quarterly update in which it offered a surprisingly upbeat forecast for 2019.

What does this mean?

Michelin�s stock price hit seven-year lows in October after it warned of slowing sales in Europe and China. So while the company�s quarterly profit, as reported late on Monday, was better than expected, those expectations were significantly lower than they were a few months back.


Investors found positives in Bibendum�s 2019 outlook, however. Despite joining the chorus of auto-didacts predicting weak demand for vehicles this year (and therefore weaker tire sales), Michelin still expects to grow its profit compared to last year.

Why should I care?

For markets: Michelin is French in name only.

Investors bought up Michelin�s stock on Tuesday, perhaps positively surprised by its rose-tinted growth prediction. Weak results last week from US rival Goodyear � where profit dropped last quarter � had honked off investors and led them to expect more of the same from Michelin. Goodyear makes 40% of its sales in the US, compared to a third for Michelin, according to FactSet, so what ails one usually ails both � but not this time, apparently. Shares in Michelin�s other rivals rose on Tuesday, likely as investors thought Italy�s Pirelli and Germany�s Continental would be better placed to grow their own earnings this year too.

The bigger picture: Crossroads for Michelin�s customers.

French carmaker Renault � a major customer of Michelin�s � owns a 43% stake in Japanese carmaker Nissan (and Nissan itself owns 15% of Renault). Nissan�s Tuesday announcement that its profit this year would be lower than expected, partly due to weaker US car sales � which shouldn�t have been a surprise to savvy investors � may therefore have led some to sell Renault�s stock. The two companies had been forging an ever-closer partnership under their former chairman. But now he�s on the naughty step, the hoped-for merger currently seems, like eating in a Michelin-starred restaurant, a somewhat outlandish possibility.