The yo-yo week on Wall Street continues with stocks bouncing after Donald Trump tweeted support for a range of fiscal stimulus measures, having earlier set the market down by calling off talks on a comprehensive package until after the election. Whether it’s now or after November, what’s been made clear to investors is that fiscal stimulus is on its way. The timing becomes less important – doubts would resurface if there is a contested election result that leaves Washington lawmakers unable to come to a deal. However, Joe Biden’s lead in the polls would suggest this is becoming less likely, albeit my inclination is that Trump will do a lot better than the polls indicate.
The S&P 500 rose to its highest level since the start of September, finishing up 1.74 per cent at 3,419, with the Sep 4th closing high at 3,426 offering the daily resistance. All 11 sectors rose. The Dow climbed 530 points, or 1.9 per cent, to notch its best day since July. The Nasdaq added 1.9 per cent. The question is whether the market can put two straight days of gains together, something it’s not managed in a week. The range-bound nature of the market right now and the general uncertainty around stimulus and the election – not to mention the Q3 earnings season about to kick off – may make it tough to cement gains. Nevertheless, futures point to further gains when the cash equities open later. European markets opened higher in early trade on Thursday.
Fed minutes showed that officials are divided over the application of the central bank’s new policy framework. Policymakers ‘discussed a range of issues associated with providing greater clarity about the likely path of the federal funds rate in the years ahead’. Meanwhile a report from Fed economist Michael Kiley called for the central bank to juice bond holdings by another $3.5tn to support the economy. The market probably liked this idea, too. Participants agreed on the uncertainty facing the economy, albeit there are the likes of Bullard who think it’s all going to be fine by the end of the year. Weekly unemployment claims data later today will be watched as closely as ever.
German exports rose more than expected in August, climbing by 2.4 per cent vs expectations for 1.7 per cent. However, this was down from the 4.7 per cent recorded in July. Exports to the US were down 21 per cent, whilst China imported only 1.1 per cent less goods than last year.
UK Company Announcements
| easyJet (EZJ) | easyJet will report its first ever annual loss when it releases its full-year results on 17 November. The airline, which only expects to operate a quarter of its normal capacity in the last three months of the calendar year, has made a loss in the range of £815-845m. |
| TalkTalk (TALK) | The broadband and mobile operator is in discussions about a potential takeover by Toscafund Asset Management, which values the company at £1.1bn. Shares jumped 17 per cent in morning trading. |
| GVC (GVC) | GVC shares jumped 7 per cent in early trading after the betting company said that it expects its cash profits for the year to come in ahead of previous forecasts. GVC has benefitted from a busy sporting calendar, while online gaming revenues are ahead of pre-pandemic levels. |
| Hargreaves Lansdown (HL.) | Net new business growth slowed in the three months to September, which the investment platform said was a "pleasing" result given a tough previous comparison period, weakening investor sentiment, and the re-emergence of Brexit risks. Shares have slipped 3 per cent in early trading. |
| CMC Markets (CMCX) | Another trading update, another consensus-beating profit upgrade from the over-the-counter CFD provider. Net operating income for the year to March is likely to come in towards £349m, above the £330m average forecast, though operating costs are also above consensus. |
| Unite Group (UTG) | The university student accommodation provider expects a 10 to 20 per cent reduction in rental income for the 2020/21 academic year, following a 10 percentage point drop in bed space occupancy and a delay in many students' start dates. Should occupancy rates fall to 55 per cent, Unite's bank covenants could be tested. |
| Home REIT (HOME) | The largest investment trust IPO of 2020 has successfully raised £240.6m to buy assets providing accommodation to the homeless. Admission of the shares - valued at £1 each - is set to take place on 12 October. |
| NewRiver REIT (NRR) | In a bullish update, the retail-and-leisure focused property trust has seen an improvement in rent collection, with 84 per cent of second quarter rents either paid, deferred or re-geared. Property disposals are also ahead of plan, providing a much-needed boost to liquidity. |
| Urban Logistics (SHED) | One real estate investor which remains well-insulated from this year's disruption, the warehouse specialist has already collected 99 per cent of rent due for the December quarter. |
| Polar Capital (POLR) | Despite closing its UK Absolute Equity fund in the period, the active manager saw its assets under management jump a third to £16.4bn in the six months to September, thanks in large part to strong fund performance. |
| Imperial Tobacco (IMB) | Changing behaviour during lockdown has seen customers spending more money on tobacco. The group said its net revenue performance was slightly ahead of guidance provided at the half-year stage, and should be flat year-on-year – but Covid-related restrictions have generated extra costs. Imperial said that EPS will fall by roughly 6 per cent, in line with consensus estimates. |
| Tharisa (THS) | The platinum and palladium miner managed to increase production year-on-year despite the Covid-19 shutdown in South Africa. This sets the company up for a massive earnings uptick for its financial year ending 30 September, with the basket price of its metals up 58 per cent on last year. |
TalkTalk shares shot higher after it received an offer Toscafund Asset Management for 97p a share. TALK rallied over 16 per cent to exactly 97p. Executive chairman Charles Dunstone needs to approve the takeover for it to pass. With no discount and no premium in the price this morning, the market seems to think he is onside. There were signs of something afoot in the summer - Dunstone purchased 1m additional shares at the end of June at 86p after Tosca raised its stake to 29 per cent. TalkTalk had somewhat gone off my radar of late so I must revert to a two-year old note from 2018: “Increasingly TalkTalk looks like it's ripe for takeover. It provides a good entry point into the UK broadband market and with growing subscriber numbers, there is plenty to recommend it. Indeed, with a strong subscriber base, improving margins and shares still at multi-year lows, for anyone looking for an entry point into the UK broadband market then it's probably your best bet.” Recently it’s enjoyed decent cash growth on better fibre rates and cost control.
Smoking kills: Imperial Brands is seeing increased demand for its products as a result of the pandemic. And it’s good old fashioned cigarettes and tobacco we’re talking here – ‘next generation products’ like vaping are down 30 per cent. Another unwanted side effect of governments’ inept, disruptive and failing approach to dealing with the coronavirus. It’s been about fighting Covid at all costs and the UK government for one has systematically failed to consider the wider public health implications of their response. For example, Matt Hancock recently admitted that cancer patients would only be treated if the virus was ‘under control’.
Management today noted: “We have experienced some COVID-related changes in consumer behaviour with increased overall demand against our expectations, as consumers appear to have allocated more of their spend to tobacco, as well as some demand shifts between different markets and channels. This has resulted in better than expected volumes, driven by improved volume trends in several key European markets and in the US.” Group revenues are slightly ahead of the half-year guidance, but additional manufacturing costs as a result of Covid have been incurred. Constant currency earnings per share are down about 6%, in line with expectations.
Meanwhile, EasyJet reports today it’s on course for its first-ever annual loss as a result of the pandemic restrictions on air travel that have crippled the industry. Management expects to report a group headline loss before tax in the range of £815m to £845m after flying 50 per cent fewer passengers than last year. The airline flew 38 per cent of planned capacity in Q4, in line with the September update in which it said capacity would be slightly less than 40 per cent. These sorts of losses were anticipated and, overall, I think investors only really care about liquidity and headroom to get out the other side of this. On that front easyJet had a cash position of £2.3bn as of the end of September and it’s lowering costs aggressively to reduce the cash burn wherever it can – Q4 cash burn was less than Q3, which is a positive. Capacity of Q1 2021 will be at 25 per cent. With winter coming it’s usually a lean time for airlines and it’s going to be a long period of uncertainty as we await to see whether next summer is strong enough to prevent further cash being required. But easyJet looks ok for now. Plans for a testing system for arrivals into the UK to reduce the quarantine period would be a boost, but there many factors that will weigh on demand, from unemployment to fears about the virus itself.
Neil Wilson is chief markets analyst at Markets.com
