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Market Outlook: Stocks falter after Wall Street rallies, yields eye break out, Boohoo, Centamin & more

Sentiment in London is downbeat in early trading
October 21, 2020

European stocks were weaker on Wednesday morning after a mixed session the day before. The FTSE 100 hovered around the 5,900 level in early trade before retreating to 5,850. US stocks rose in the prior session, with the S&P 500 recovering to 3,440 and the Nasdaq clearing 11,500 again. US Treasury yields rose, with the 10-year breaking to 0.82 per cent, its highest in over 4 months. Gold broke higher as the dollar weakened. WTI (Dec) was steady around the $41 level after the API reported a 584,000-barrel build in crude stocks vs a forecast 1.9-million-barrel draw. EIA data later expected to show a 0.5m build. 

UK Company Announcements

Boohoo (BOO)

Boohoo chairman Mahmud Kamani has led a round of director share purchases after days of share price weakness for the fast fashion retailer, picking up £729,210 in shares. The company has come under further pressure following revelations about working practices in its supply chain after confirming its auditor PwC was stepping down.

Centamin (CEY)

The gold company has cut its 2020 production forecast again, to 400,000 - 430,000 ounces (oz), now 100,000oz down on original guidance following discovery of an unsafe area in the Sukari open pit earlier this month.

Atalaya Mining (ATYM)

In an €1.4m (£1.3m) deal, the copper miner will take on a third project. Masa Valverde is another brownfield project, like Riotinto and Touro, although was a polymetallic operation, rather than a copper mine.

Segro (SGRO)

UK rent collection improved to 85 per cent of the amount billed for the fourth quarter and the logistics property specialist signed £5.8m in lettings of speculative developments and pre-let agreements since 1 July, taking the nine-month total ahead of the same time last year.

William Hill (WMH)

William Hill revenues recovered in its third quarter with the continued resumption of live sport, with turnover sitting 9 per cent down on last year. Sports results have been more unpredictable, an outcome that has been attributed to events being held behind closed doors. William Hill said this was creating unstable win margins and expects this volatility to continue.

C&C (CCR)

Reflecting a collapse in demand from the ‘on-trade’ channel (pubs, bars and restaurants) the group swung to a €12m (£11m) adjusted operating loss in the six months to 31 August, versus a €64m profit a year earlier. It turned a profit from July through September as outlets reopened, but says that October has been “challenged” by the reintroduction of restrictions.

Cohort (CHRT)

Subsidiary Chess Dynamics has secured three new contracts across the UK and Europe with a combined value of £16m. Work is set to commence in the current financial year and deliveries will take place from 2021 through to 2028.

Metro Bank (MTRO)

Shares in the challenger bank are up 7 per cent this morning, after a third quarter trading update contained no further increases in expected credit losses. The proportion of mortgage payment deferrals is also well down, though no detail was provided on commercial loan quality.

Quilter (QLT)

Despite a permanent bid for the stock through a £375m share buyback programme, the market remains nervy about the prospects for the investment platform's mammoth asset migration job. By the end of this year, 80 per cent should be complete; with the next switch due at the end of November.

Both Democrats and Republicans say they’re making progress on stimulus talks, though the chances of a deal before the election still look very slim. Brexit talks are still alive as the two sides put the weekend’s harrumphing behind them. Sterling was lifted by dollar weakness with GBPUSD moving towards the top of the range at 1.30, but this was largely about the greenback softening. DXY took a 92 handle. 

The spread of the virus in Europe and the response of governments is a clear weight on the market, whilst US stimulus and election risks are to the fore. We’re also in the midst of an earnings season. And then we can throw in Brexit in to the mix – lots of reasons to chop sideways for a while longer.

The boom in new customers Netflix enjoyed in the first half of the year due to the pandemic and lockdowns faded in the third quarter. Earnings missed on the bottom line and fell short in terms of net subscriber additions. EPS of $1.74 was short of the $2.14 expected, though revenues of $6.44bn were a little better than anticipated. The key though is the net subscriber adds, which fell to 2.2m vs more than 3.5m expected. For the fourth quarter the company guided 6m net adds, short of the 8.8m added in Q4 2019. Clearly there has been, as Netflix told us, a significant pull forward in demand in the first part of the year. Shares fell 5 per cent in after-hours trade. 

Alphabet – the US Department of Justice filed an antitrust lawsuit accusing the Google parent of abusing market power in a landmark case. This may create regulatory risk and overhang for the stock going forward until there is a resolution. Whilst it is much harder to really pin the same thing on some of the other big tech names, it is clear Alphabet has monopoly power over search. It’s hard to argue otherwise, though we are sure Alphabet’s lawyers will do their best. Investors are unconcerned about it – shares rose over 1 per cent. 

Tesla reports later today. The stock has soared around 450 per cent this year as the company has driven sales and profits higher whilst also allaying concerns about its balance sheet. Investors are expecting strong earnings off the back of a record quarterly delivery number. Tesla delivered 139,300 vehicles in the third quarter and produced 145,036. This marked a significant uptick from the roughly 90,000 delivered in Q2.

Election Watch 13 days to go 

Biden’s lead is diminishing but is still meaningful. Nationally, Biden’s lead has fallen to 8.6pts, whilst in the key battlegrounds it has come in to just 4pts, which is getting close to margin for error territory. At this stage in 2016, Trump was 4.1pts behind Clinton in the swing states that matter.

 

Neil Wilson is chief markets analyst at Markets.com