A mixed start for European stock markets this morning with equities failing to struggling out of bed after yesterday’s session left indices in the red. The FTSE is really struggling to peel away from the 5,800 level, while the DAX either side of the flatline in early trade as investors try to make up their minds.
US stocks finished higher amid a choppy session on Wall Street. Ten out of 11 S&P 500 sectors rose as the broad market closed up 0.3 per cent at 3,246 having tested the lows at 3.209, its weakest intra-day level since the end of July. When the selling at the open didn’t force further selling, there was an opportunity for dip buyers to come in. Nevertheless, the index is down 2.2 per cent for the week still. The Dow rose 0.2 per cent but is –3 per cent for the week. The Nasdaq also rose but is down –1 per cent on the week and is on course for its fourth straight weekly decline, which would be the first such run of losses since August 2019. European markets are on course for 3-4 per cent losses on the week.
UK Company Announcements
| boohoo (BOO) | Boohoo shares surged 15 per cent after publishing an independent review into its supply chain, after allegations regarding factory working conditions in Leicester were made in The Sunday Times in July. The report found "many failings" in the supply chain but said that there was no evidence that Boohoo or its directors had committed any criminal offence. |
| Shaftesbury (SHB) | The West End landlord has canned its full year dividend and has extended its support measures for tenants in the face of renewed restrictions from the government |
| Pennon (PNN) | In line with its expectations, the group is guiding to a net £10m revenue hit from Covid-19 for the year to 31 March 2021 – although the regulatory model means shortfalls can be made up for in future years. Having received £3.7bn in net cash proceeds from July’s sale of Viridor, around £600m has been used to repay debt and Pennon says it will review “the most efficient and effective method of returning value to shareholders”, alongside any M&A opportunities. |
| Anglo Pacific Group (APF) | On top of its quarterly dividend, the mining royalty streaming company has announced a £5m buyback scheme, financed from the sale of “non-core equity holdings”. The company’s share price is down 44 per cent year-to-date. |
Some positive headlines around a US stimulus deal and vaccine news may be supportive of risk today but sentiment is fragile, and it’s been a turbulent week – I think we need to see how it shakes out at the close for a better read on where the next move goes. Whilst the market finished a tad higher yesterday, the S&P 500 keeps making new lows and sentiment seems to hinge around several downside risks. Right now, the up days are not as strong as the down days, which tells me momentum is with the bears for now. Any bounce we get needs to be seen in the context of a very sharp pullback on Monday and on Wednesday. Until we clear last week’s levels – 3400 on SPX, around 3300 on Stoxx 50 and 6,000 on the FTSE, the bias looks to the downside for me.
For the UK, there is looming unemployment crisis, despite the government’s new jobs scheme. Whilst extending support for another 6 months, the chancellor’s plan will only help those in viable jobs – the crunch comes in November. Just how many are viable longer term? How many of the roughly 3m on furlough won’t have a job at Christmas? Needless to say with all this support, UK public borrowing is soaring. This raises concerns about tax rises down the line to ‘pay for it’. But as previously discussed, deficits shouldn’t matter: rather than taxing the recovery and stifling it, the government ought to consider outright debt monetization, given the extraordinary circumstances we are in.
House Democrats are working on a $2.2 trillion coronavirus stimulus package – we’ve been before, so I wouldn’t assume it will pass. Indeed, House Republican leader Kevin McCarthy immediately dismissed the package, but we cannot rule it out entirely. Is this too much of a temptation for bulls? Meanwhile, the nonsense worries about Trump refusing to leave the White House have thankfully been largely put to rest after Senate majority leader Mitch McConnell vowed there will be an orderly transition just as there has been after every election since 1792. However, I still believe the election will be contested and we are unlikely to know the final result on November 4th.
On the vaccine front, there are more and more clinical trials happening. Sanofi says it is ready to produce 1bn doses of its vaccine with partner GSK from early next year. Dr Fauci sounded optimistic this week, telling Congress there is “growing optimism” there will be one or more safe and effective vaccines ready either by the end of 2020 or early 2021.
The re-emergence of king dollar has been a big weight on stocks in the US – it’s no coincidence that the dollar reversed its slide at the start of September just as stocks rolled over. This in can turn can breed defensiveness in other regional equity markets. The dollar index retreated from resistance around 94.60 - this is an important level with an upside breach calling for a return to 95. However, with the 14-day RSI rolling over this may be a time for a pullback and consolidation around the 94 region with a test of 93.70 on the cards. With the dollar coming off its highs there has been some relief for precious metals. Both gold and silver seem to put in a near-term bottom after some nasty price action in recent days. Gold found support at $1,850 and rose to $1,870. Silver has rallied back above $23 after the $22 level held.
Sterling is finding bid with GBPUSD making solid progress towards 1.28 as the dollar comes off. Trend resistance above with the confluence of moving average and Fib support offering decent base. Looking for clearance of 46 on the RSI for bullish signal. Look also at the bearish 21-day SMA crossover with the 50-day at the 1.30 pivot. The 38.2 per cent retracement at 1.2690 is the major support after the 200-day EMA around 1.27650.
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Neil Wilson is chief markets analyst at Markets.com
