You got a sense yesterday that an old friend was back in town and everyone wanted to take her out: Tina (There is no alternative) reappeared with retail investors trying to take her out for a drink again. The Nasdaq whale maybe also reappeared with some large options activity going on. The S&P 500 is within striking distance of a fresh all-time high after a tech-led surge on Wall Street left the broad market +1.6 per cent to close at 3,534, while the Nasdaq jumped 2.6 per cent as it notched its best day since April. This was a real momentum/growth charge and tech volatility also rose as options activity remains elevated. European shares faltered in early trade Tuesday with US futures also a tad lower following Monday’s ramp. All sectors on the Stoxx 600 fell with utilities and tech least affected while consumer cyclicals and financials were at the bottom of the heap.
Volatility on the S&P 500 has retreated, though there is some premium around the US elections. The narrative around the elections is very much on what a Blue Wave means for the market. Right now we think that this means more stimulus and a removal of uncertainty – all the market wants is to get the election out of the way. But there are also things like higher taxes and regulation that need to still be appreciated. Nevertheless, clearly the consensus seems to be that a Blue-Nami would be risk on – the sheer scale of the stimulus on the table - $2.2tn is about 10 per cent of US GDP - is also underappreciated.
Meanwhile there are also fears of delays to vaccines at the same time as rising cases globally are leading to new lockdowns, which will favour Covid winners like US large cap tech over cyclicals names which had been shown promise. Johnson & Johnson has paused its vaccine trial after an ‘unexplained illness’. Dr Fauci said the US faces a lot of trouble as case numbers rise into the winter.
The UK is embarking on a 3-tier system but even the chief medical officer thinks the most stringent restrictions as they stand are not enough to stop the spread (and protect the NHS, at all costs to mental health and wellbeing), which begs the question – why not have a fourth, stricter tier? Of course, the idea is to make local leaders take the really tough decisions. The UK economy will endure a long winter.
UK Company Announcements
| Derwent London (DLN) | Eighty per cent of the £45.2m rent due for the September quarter has so far been received, which the FTSE 250 group said was slightly better than the equivalent points in March and June. A further 13 percent will be paid later this year or in 2021. |
| Sabre Insurance (SBRE) | Premium income appears to have recovered from lockdown, though full-year income is still expected to dip 10 per cent in 2020. Management believes the car insurer's combined ratio target - in the mid-70s - remains achievable, however. |
Apple and Amazon provided bull catalysts for the Nasdaq as they jumped ahead of the new iPhone 12 launch later today and Amazon’s Prime Day event, which takes place 13-14 October.
Apple shares surged on a retail flood of options activity which could see a melt-up further in tech stocks as we head into the end of the week expiries. Apple is today expected to unveil its new 5G-capable iPhone 12, with investors eyeing how the new product line-up will drive top sales growth in the near-term. It could be the most important event in several years for Apple as it seeks to drive a game-changing upgrade cycle. Recent earnings from Apple show consumers are a long way from any kind of smartphone or device fatigue – the question is whether 5G is the moment to unleash further demand for iPhones.
The event, screening online from 10am Pacific time on Oct 13th, is expected to mark Apple’s delayed and long-anticipated launch into the 5G space. Whilst it’s behind the curve of several manufacturers on this front, penetration rates for 5G phones have not been significant yet. In many ways consumers have been waiting for Apple to get this party started. Moreover, 5G networks are in early stages. I would anticipate that this is the moment many Apple users have been waiting for and it could mark a step-change in the device upgrade cycle as we saw with the X. Apple’s iPhone refresh will be the first major update since the launch of the X in 2017. Apple is expected to announce four new iPhone devices with a range of sizes and a design that takes its inspiration from the iPad. There will be a number of other ancillary product releases, too, but all that matters for the shares will be the reception to the iPhone.
Supermarkets – Kantar said Tesco’s 12-week sales rose 9.2 per cent, Sainsbury’s +6.8 per cent and Morrisons +11.5 per cent. Shares in all three rose mildly.
Carmakers – Chinese car sales rose 8 per cent in September, with electric vehicle sales +60 per cent. Overall auto sales rose 13 per cent.
Trade – Chinese imports rose 13.2 per cent in September, while exports rose 9.9 per cent as trading partners around the globe lifted coronavirus restrictions. AP Moller Maersk upped its profit guidance after a swifter-than-expected rebound in shipping volumes.
Election Watch
Biden extends national lead to 10.2pts and holds a 4.8pt lead in the key battlegrounds - but Trump was down 5.1pts at this stage in 2016. Betting odds still favour a Biden win at 65 per cent.
GBPUSD holds onto the 1.30 handle as the dollar tries to stage fightback. 50-day SMA offers key support.
Neil Wilson is chief markets analyst at Markets.com
