European markets rose 1 per cent in early trade on Wednesday, extending mild gains from the previous sessions following the steep selling on Monday. Yesterday, the S&P 500 rose 1 per cent, and the Nasdaq climbed 1.7 per cent, whilst markets across Europe were a little more mixed with London and Frankfurt higher but Paris lower. Today sees solid bid across sectors and bourses with a slate of manufacturing and services PMIs in focus. The FTSE 100 recovered the 5,900 level, with even IAG and easyJet getting in on the action, rising 6 per cent each. Safe-haven play Fresnillo was off by a similar margin as silver and gold prices come under a good deal of pressure again today. There is no clear evidence for the airlines to rally except that perhaps there was an overreaction earlier in the week.
PMIs underline the fragility of the recovery. I will issue the usual caveat about extrapolating too much from these diffusion indices, but they do highlight an interesting trend. The manufacturing sector can sustain a recovery as firms can work out how to function in the new environment, but it’s harder for many service sector businesses to operate at all, which drags on the number. Service sector companies are also much more exposed to the caprice of lockdowns. Both German and French services PMIs came in under 50, indicating contraction (survey respondents think things are worse than the month before), while both countries’ manufacturing PMIs pointed to expansion.
The UK is heading for a second lockdown-lite, which will dent the recovery and hit some sectors especially hard, but perhaps more importantly this is spurring the chancellor into action. With the furlough scheme slated to end in October, there is a risk of a jobs calamity even without further lockdown restrictions, which are a possibility. Rishi Sunak is reported to be working on new plans to support jobs, which may ease worries among investors that the UK economy could fall off a cliff for a second time just as the Brexit process reaches its finale.
UK Company Announcements
| PZ Cussons (PZC) | Full-year revenues edged down by 2.4 per cent, buoyed by an “extraordinary outperformance” for Carex hand-soap and sanitisers during the fourth quarter but dampened by a decline in beauty and ongoing difficulties in Nigeria. Pre-tax profits were hit by impairment charges. PZ has lowered its final dividend, with a view to boosting investment. |
| SSP (SSP) | Weekly sales in the food and beverage concessions operator's second half are running at just over three-quarters below last year's level, representing an improvement on SSP's third quarter, when sales were 95 per cent down in April and May. The mild recovery has been driven by improving trading conditions in continental Europe. |
| Joules Group (JOUL) | Joules' online sales leapt 63 per cent in the clothing and homeware company's 13 weeks to 30 August, while overall sales were down by nearly a fifth owing to stores and those of its partners not being open for part of this period. All stores have now reopened. |
| Halma (HLMA) | The group has reiterated its full year guidance that adjusted pre-tax profit for the year to 31 March 2021 will be 5-10 per cent lower than the £267m seen in 2020, and more weighted towards the second half. The US and Continental Europe have remained resilient while trading in the UK and Asia Pacific has been more challenging. Halma also announced that chairman Paul Walker will be stepping down by July after eight years in post. The search for a successor is underway. |
| Uniphar (UPR) | The Dublin-based healthcare services group has acquired US-based Diligent Health Solutions (DHS) for $27m, with $10m paid upfront and the rest subject to cash-profit performance over four years. DHS specialises in healthcare communications. Uniphar says the deal is “highly complementary”. |
Individual stocks are putting some very big moves daily which only indicates the kind of dislocation in market pricing, uncertainty about the path of the pandemic and the fact that no one really knows where a lot of these securities ought to be trading. Whether it’s value or growth, tech or travel, the unevenness of both the recovery and government policy means it’s hard to know what a fair value is. Trying to extrapolate a narrative to fit all of this is often a fool’s errand.
A case in point: Tesla shares fell over 5 per cent and extended their decline by a further 7 per cent in after-hours trading, despite Elon Musk outlining the company’s plans to halve the cost of battery manufacturing and market an electric car at $25,000. The new battery tech would deliver 16 per cent more range and x6 more power, but the company said production in volume is three years away.
There is some debate about whether Tesla’s Battery Day announcements amount to incremental or revolutionary changes to battery technology, but two things are clear: Tesla has not suddenly acquired warp speed capability, but clearly the company has a roadmap to cheaper, longer life battery technology that it will make itself and will allow it to lead the EV field for a while longer. Panasonic and other suppliers were hit with Tesla planning to make its own battery. Nevertheless, given all the anticipation around a potential game-changer in battery technology, investors were a little underwhelmed by the news. Tesla’s Frankfurt-listed shares declined 7 per cent at the open, before paring losses a touch.
Nike shares shot higher after-market following an 82 per cent rise in online sales, with the company expecting to benefit from a permanent shift to direct online sales. EPS of $0.95 beat the $0.47 expected, on revenues of $10.6bn vs the $9bn expected. Nike continues to benefit from its strong brand presence that is akin to Apple in the smartphone space, as well as large investments in its web and mobile platforms. Shares in Adidas and Puma rose about 4 per cent on the read-across.
Ant Group took a step closer to its mega-IPO after it submitted documents for registrations of the Shanghai side of the listing. The company plans to list both on Shanghai's STAR Market and in Hong Kong, with valuation estimates in the region of $250bn-$300bn.
In FX, GBPUSD traded under 1.27 in early European trade after the downside breach of the 200-day EMA presented bears with an obvious momentum play. Yesterday’s move under the 1.2760 level has opened up the path to further losses and today the pair is trading through the 100-day line and testing the 38.2 per cent retracement at 1.2690. Whilst Andrew Bailey attempted some push back on negative rates, saying they are not imminent, the takeaway from his comments was that this unorthodox and dangerous tool is very much being actively considered by the bank’s Monetary Policy Committee.
GBPUSD downside exposed
The USD continues to find bid, which is weighing on gold. DXY extended its push out of the channel, forcing gold to trade under $1,900 and test the 50 per cent retracement around $1875, corresponding with the horizontal support of the descending triangle formed by the August lows. Silver has a bearish bias after breaching the August low.
Dollar continues breakout
Gold tests 50% retracement
Silver breaks August lows
Neil Wilson is chief markets analyst at Markets.com
