You just can’t keep ‘em down: Stocks surged again as vaccine hopes and positive language around US-China trade lifted the boats. The S&P 500 closed at a new record high at 3,431, led by Energy and Financials, two of the most beaten-up sectors, with Technology and Healthcare were at the bottom. European stocks caught a strong bid with the major bourses rallying around 2 per cent on Monday. Asian markets followed the lead overnight, with Tokyo up more than 1 per cent and although Shanghai and Hong Kong were a tad weaker.
Today, the narrative is much the same as yesterday. European stocks continued to advance with gains of around 1 per cent as risk sentiment remained robust after official figures showed Germany’s economy shrank less than previously thought in the second quarter. The numbers are still terrible: output declined by –9.7 per cent, but this was an improvement on the –10.1 per cent drop in the original release. Germany’s Ifo business survey showed sentiment is on the rise too. The euro caught some bid after these two releases to advance above 1.1830 and test trend resistance having come under a bit of pressure yesterday evening again as the near-term downtrend remains the dominant force. Yesterday’s high at 1.1850 is the bulls’ target and this needs to be cleared to suggest the bears have lost control.
UK Company Announcements
| Aveva (AVV) | The group has agreed to buy OSIsoft at an enterprise value of $5bn, a software company focused on real-time industrial data. About $4.4bn of the deal will be paid in cash, supported largely by a proposed rights issue. |
| DFS (DFS) | DFS has secured around £70m in revenues over the last six weeks, which is significantly ahead of the sofa business's expectations. Its current order book stands to add a further £100m of turnover this year, although DFS warned that some of its sales may have been pulled forward from later in the year, which could impact trading in the months ahead. |
| Arrow Global (ARW) | Back in March, chief executive Lee Rochford told us the looming coronacrisis was "exactly the kind of situation" the debt collector was built for. Today's half-year numbers - which include a halving in shareholder equity and a £134m impairment - tell another story. |
| James Fisher (FSJ) | Profits dropped 59 per cent in the first half of 2020 amid the industry contraction brought about by Covid-19. The interim dividend is down 29 per cent to 8p a share. Restructuring costs of £1.5m were recognised due to a reduction in Marine Support headcount in response to falling energy prices. |
| Studio Retail Group (STU) | Operating profit from continuing operations dropped by more than half in 2020, according to the group’s report yesterday. Shares were down 2.8 per cent following the release, and fell a further 3 per cent in today’s morning trading. |
The DAX rose above 13,200 to take it near the post-trough high at 13,313 hit on 21 July. The FTSE 100 advanced towards 6,200 with beaten up travel & leisure stocks among the leaders. Both pared gains after the first hour of trading however. US futures point to further gains on Wall Street.
Apple shares rose over $500 as investors continued to pile in and analysts noted that its forward earnings multiples are not that rich after all, and certainly not as expensive as rivals. Apple has transformed itself from a pure hardware manufacturer to a full service led tech platform and therefore the stock has rerated.
Top US and Chinese officials discussed the phase one trade agreement after a meeting scheduled for earlier this month was postponed. Both sides are seeing progress in areas like the increase in purchases of US products by China. The two sides also discussed how China will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer, the US Trade Representative said in a statement. This came after the US and EU agreed to reduce tariffs on some goods.
Meanwhile vaccine news is still helping rather than hindering risk sentiment. AstraZeneca said today it has begun the phase one clinical trial of its monoclonal antibody combination for the prevention and treatment of Covid-19. However, Hong Kong has reported its first confirmed coronavirus re-infection, with a man found to have been infected months apart by different strains of the virus.
Economists remain concerned about the double dip: according to the National Association for Business Economics, there is a one in four chance the US economy could fall into a double-dip recession. Two-thirds of economists surveyed think the world’s largest economy remains in recession.
President Trump got the Republican convention off to a belligerent start as he warned of a rigged election as he sought to cast doubt over the voting process ahead of the election. I don’t think the market really needs to worry about there not being a smooth handover of power, but I would think that a close result could see Trump launch multiple legal challenges which would create the kind of uncertainty markets don’t like.
Elsewhere, gold continues within the near-term downtrend but is yet to make a new low since the $1911 trough last week and is catching support from the longer-term rising trend line. US real rates (10yr TIPS) slipped further into negative territory again.
Neil Wilson is chief markets analyst at Markets.com
