UK growth unexpectedly cooled in August, signalling a slower pace of recovery into the back-end of the year. GDP rose by 2.1 per cent in August, which was below the 4.6 per cent expected, despite the eat out to help out scheme boosting the hospitality sector significantly. The food and beverage service activities industry grew almost 70 per cent over July thanks to the easing of lockdown restrictions and the government support scheme.
Nevertheless, the outlook is not particularly encouraging. August 2020 GDP was 21.7 per cent higher than its April 2020 low, but the UK economy is still 9.2 per cent below pre-pandemic levels. Sticking plasters like eat out to help out act only as a mild salve. Moreover, as the government considers more restrictions on people’s liberties to combat the virus, it is clear the path of recovery to pre-pandemic levels of activity will be slow and difficult. The pace of recovery has peaked, and things may get worse as we head into the winter before they improve again. The UK Chancellor Rishi Sunak will announce the next phase of the job support programme later today, which is set to include support for workers in industries forced to close under local lockdowns, such as bars and pubs. Sterling was unfazed by the loss of momentum in the economy with GBPUSD nudging up to 1.2970, yesterday’s high and close to the top of the range at 1.30.
Markets of course are rather decoupled from the realities of the economy thanks to vast amounts of central bank stimulus and liquidity. The FTSE 100 rose above 6,000 for the first time in three weeks but this level continues to act as a very difficult barrier for bulls to clear. The S&P 500 closed up 0.8 per cent at the highs of the day at 3,446. The Dow added 0.43 per cent for its third positive session of the week and the Nasdaq added 0.5 per cent. House speaker Nancy Pelosi said Democrats would reject any standalone stimulus packages. But we know stimulus of some sort is coming either before or after the election – the problem emerges if there is a contested election.
Dallas Fed president Robert Kaplan underscored his more hawkish credentials, saying there is no need for additional QE on top of the Fed’s $120bn-a-month programme. A Fed paper this week suggested it could increase asset purchases by $3.5tn to boost the economy. Kaplan said that “the bond-buying needs to curtail, the Fed balance sheet growth needs to curtail”. The Fed’s position however remains that it will continue to purchase assets at least at the current clip.
Election Watch
With 25 days to go to the US election, Joe Biden leads Donald Trump by 9.7pts at a national level but his lead in the top battlegrounds has come down to 4.6pts. Trump trailed Hilary Clinton by 5.1pts in the key battleground states at this stage in 2016, but we should note there are fewer undecided voters this time. Latest betting odds imply 65% chance of a Biden win.
UK Company Announcements
| British Land (BLND) | The property titan has announced that it is resuming the payment of dividends, as it revealed that footfall in the group’s properties was 21 per cent ahead of the benchmark level where management thought it would be |
| TP ICAP (TCAP) | The inter-dealer broker is launching a $425m rights issue to fund its previously-announced purchase of electronic trading network Liquidnet. A price is yet to be set, but to help finance the deal the group has already pledged to halve its 2020 dividend. |
| London Stock Exchange (LSE) | In a bid to put the regulatory stamp on its tie-up with Refinitiv, the City bourse has inked terms to sell Borsa Italiana to Euronext for €4.325bn. The deal, which values the division at 16.7 times' its 2019 adjusted cash profits, will also be used to reduce the LSE's leverage. |
| Premier Miton (PMI) | Strip out the effects of the merger with Miton Group, and the legacy Premier Asset Management's funds under management shrank to £10.6bn in the year to September. In large part, that was due to the £821m of outflows from multi-asset funds. |
| Petropavlovsk (POG) | After several months under new management, the Russian gold miner has announced 2020 production will be around 13 per cent below previous midpoint guidance. Its shares were down 6 per cent on the news. |
| Marston's (MARS) | The Competition and Markets Authority has cleared the pub and brewing group's joint venture with Carlsberg, paving way for the deal to be completed at the end of the month. |
| Stagecoach (SGC) | Stagecoach said that despite its regional bus revenues sitting at around half last year's levels, continued government backing will help it avoid significant operating losses and help it generate cash profits. |
| Biffa (BIFF) | The acquisition-focused company has spent £35m on Simply Waste, an industrial-focused company based in the south of England. This is seven times the smaller company’s 2019 Ebitda. |
The pandemic has wrought damage on the commercial property sector as businesses have found it difficult to meet rent payments on time and the value of assets has been written down. Land Securities advised today that of £110m rent due Sep 29th, just 62 per cent was paid within 5 working days, vs 95 per cent for the same period a year before. Businesses renting office space (82 per cent on time) were timelier than retailers (33 per cent on time). For the earlier part of the year, the company has received 84 per cent of rent due on 25 March (up from 75 per cent at 2 July) and 81 per cent of rent due on 24 June. Nevertheless, shares rose 3.5 per cent in early trade as these numbers are perhaps not as bad as feared.
British Land gave a very robust update though, noting all retail assets and 86 per cent of stores are open. Footfall is 21 per cent ahead of benchmark, retailer sales 90 per cent of the same period last year. Collection rates for June have improved to 74 per cent; 98 per cent offices, 57 per cent retail. Meanwhile 69 per cent of September rents have been collected (91 per cent offices, 50 per cent retail). Management was also keen to talk up balance sheet strength - £1bn in undrawn facilities and cash, with no need to refinance until 2024. So robust in fact it’s resuming dividend payments – another little boost for the bedraggled income investor. Divis will be paid at 80 per cent of underlying EPS. Those income investors cheered as shares rose 5 per cent.
London Stock Exchange confirmed plans to offload Borsa Italiana to Euronext. The €4.325bn is perhaps a little behind what had been touted, but it’s a necessary step to clear the decks for their Refinitiv acquisitions.
Gold is still within the falling channel but making higher lows and now pushing up to the top of the channel – 50-day SMA above but the horizontal resistance at $1.920 needs to be cleared first.
Euro Stoxx 50 – still within the long-term range but after moving above 21-day SMA now is looking to clear a cluster of moving averages including the 50-day SMA and 200-day EMA.
Neil Wilson is chief markets analyst at Markets.com
