European stocks fell and headed to break out of recent ranges with the downbeat mood attributed to the mix of fading stimulus hopes in the US and rising coronavirus cases and restrictions this side of the pond, as well as the anticipated noise and volatility around the US election. Whatever the catalysts for the reversal, we now need to see if there is a buy-the-dip mentality or whether this move lower builds momentum.
The FTSE 100 finally breached its range to the downside. Pressure had been building for some time around the 5780 region and yesterday’s weak finish opened the door to levels not seen since May. A retreat towards the 50 per cent retracement around 5650 is possible. The S&P closed at the session low, declining 0.22% at 3,435 but retains the 21-day and 50day simple moving average support at 3,404.
IAG shares fell 2.5 per cent after it reported Q3 revenues declined by 83 per cent to €1.2 billion compared to €7.3 billion last year. The airline operator reported a €1.3 billion loss before exceptional items compared to a €1.4 billion profit last year. Passenger traffic just isn’t coming through anything like as much as hoped back at the peak of the pandemic in April. By now we should all be confidently planning trips again but the second wave has done two things: restricts our movement and killed confidence to book. The capricious nature of quarantine rules has not helped. Management complain that initiatives designed to replace quarantine periods and increase customer confidence – like pre-departure testing and air corridor arrangements - have not been adopted quickly enough. For Q4 capacity is being cut to no more than 30 per cent of last year and management say they no longer expect to achieve cash flow breakeven from operations.
UK Company Announcements
| Rentokil (RTO) | Reflecting a return to growth in its larger pest control business and high demand for disinfection services, continuing revenue increased by 10 per cent year-on-year at constant currencies in the three months to 30 September, to £755m. Full year results are guided to be at least in line with market expectations and the group intends to declare a dividend when they are announced in February. |
| AJ Bell (AJB) | The investment platform ended its year with assets under management up 8 per cent, thanks to strong net flows from both advised and non-advised portfolios. Lockdown has also been highly beneficial to customer numbers, which are up 29 per cent at 281,094. |
| Travis Perkins (TPK) | Like-for-like revenue increased by 4 per cent in the three months to 30 September on the back of a strong recovery across ‘repair, maintenance and improvement’ (RMI) markets. Contrasting buoyant DIY demand, larger customer activity has been slower to return to normal with new housebuilding and commercial construction “some way below 2019”. Full year adjusted operating profit is expected to be at the upper end of current analyst expectations – company-compiled consensus gives a range of £222m-261m. |
| Shaftesbury (SHB) | The group plans to raise gross proceeds of up to £307m via a share placing and open offer, with each new share priced at 400p, in a bid to strengthen its balance sheet against falling rental income. Major shareholder Capital and Counties (CAPC) has agreed to subscribe for £65m of the new shares. |
| GB Group (GBG) | Operating profits are on track to grow by more than a quarter in the first half compared to the same period last year. This has helped wipe out most of the group’s net debt, down to £3m from £35m at the end of the 2020 financial year. |
| Petropavlovsk (POG) | Confirming a Financial Times story, the Russian gold miner said on Thursday morning its new chief executive was under police investigation over circumstances around his forced entry to the company’s Moscow head office in August. |
| Relx (RELX) | All divisions posted modest growth in the first nine months of 2020, apart from the group’s events business. Exhibitions sales have dropped 70 per cent year-to-date, although the segment only accounted for 16 per cent of revenues in 2019. |
| Daily Mail and General Trust (DMGT) | Shares lifted 4 per cent in morning trading, after the publisher said that adjusted operating profits are set to beat initial market expectations. |
As far as stimulus goes it looks like neither side is particularly willing to go the extra mile but neither wants to be seen to have scuppered a deal just days before the election.
Meanwhile intensified Brexit talks are resuming today in London and both sides want a deal before the middle of November. Sterling rose sharply yesterday to above 1.31, clearing the 50-day SMA on its way to the highest level against the US dollar since the start of September. Whilst partially down to a weaker dollar it also looks like traders are a little more confident of a deal.
Today we hear from Andrew Bailey, governor of the Bank of England, while UK Chancellor Rishi Sunak will later announce more support for businesses affected by the pandemic. US initial jobless claims on tap too – last week’s surprise jump could be repeated.
Social media stocks roared higher after a blowout quarter for Snap. Shares in Snap rose 28 per cent and Twitter rose to the top of the S&P 500 with a gain of more than 8 per cent. Facebook rose over 4 per cent and Pinterest jumped 9 per cent to a record high. Meanwhile shares in work-from-home stocks like Peloton and Zoom fell. There appears to be rotation going on from WFH stocks to digital advertising winners.
Tesla shares rose after-hours as the company reported its ‘best quarter in history’. It was a very good set of results and a fifth straight quarter of profits underlined that Tesla has made substantial progress over the last year. Revenues rose almost 40 per cent thanks to record vehicle deliveries and net profit was +130% to $331m. Margins in the core automotive division rose 483bps to 27.7 per cent.
WTI (Dec) retreated from $41.50 to $40.0 after a rise in gasoline stocks. The EIA said crude oil and distillate inventories fell, but the 1.9m build in gasoline stocks that undid sentiment as it indicated weaker demand from motorists. This was the biggest increase since May, while consumption of gasoline also declined.
Election Watch
The final Presidential debate takes place tonight. Biden’s lead nationally was cut to 7.5pts and stands at 4.2pts in the battleground states. By this stage four years ago Trump had narrowed the gap to 3.8pts.
Chart: Gold’s attempted breakout broke down around the 50-day SMA.
Neil Wilson is chief markets analyst at Markets.com
