European markets rose in early trade on Friday after a better day on Wall Street in the previous session despite the usual mix of stimulus all talk and no trousers. Financials led the way after Barclays reported better-than-expected quarterly results. The FTSE 100 recovered 5,800 this morning after the S&P rallied 0.5 per cent to 3,453 yesterday. A steepening yield curve boosted financials, while energy shares also rose firmly. Yields are starting to look interesting again, especially at the long end, which is good for banks (see below chart). Whilst central banks are keeping their thumbs on the front end, longer-dated bonds are moving, and this is creating the steepest curve we’ve seen for some time. A combination of massive expected issuance/Fed purchasing more assets and slow and steady recovery from the pandemic is in play. Rising nominal yields would crimp gold but we await to see whether the vast increase in the money supply plus supply chain effects from Covid and deglobalisation start to feed into rising inflation and keep real yields negative.
A strong performance at the corporate and investment bank lifted Barclays (BARC) to a significant Q3 pre-tax beat. Profits before tax of £1.15bn was about twice what was expected by the market. Much like its bigger Wall Street cousins the investment banking division is offsetting a weaker performance in the consumer bank. Sticking with the investment bank was the best thing Barclays could have done. Corporate and Investment Bank (CIB) income +24 per cent to £9.8bn, driven by strong performance in trading. Consumer, Cards and Payments (CC&P) income –11 per cent to £2.6bn, driven by lower balances, margin compression and reduced payments activity. The numbers really highlight what’s happening in the real economy. Barclays UK income –12 per cent to £4.7bn reflecting lower interest rates and unsecured lending balances but improving from the Q2 ‘low point with net interest margins stable. Group credit impairment charge of £0.6bn, up 32 per cent versus prior year but down 63 per cent versus prior quarter and less than the ~£950m expected. Shares rose over 4 per cent in early trade and helped lift Lloyds, Natwest and HSBC +2-3 per cent higher.
UK Company Announcements
| McCarthy & Stone (MCS) | US private equity firm Lone Star has put in a recommended cash offer for the retirement housing specialist, which values the group at around £680m. The offer represents a premium of around 39 per cent to the group's closing share price yesterday. However, the shares are still down around a quarter over the past 12 months. |
| London Stock Exchange (LSE) | To no huge surprise, the blockbuster acquisition of Refinitiv is now expected to close in the first quarter of 2021, amid a protracted dance with European competition authorities. Third quarter income rose 2 per cent to £600m, a performance which CEO David Schwimmer described as "resilient". |
| Nucleus Financial (NUC) | Net flows slowed to £82m in the three months to September, as the adviser-led investment platform continues to make uneven - if gradual - progress in replicating the success of its larger peers. |
| InterContinental (IHG) | The hotel group's revenue per available room (RevPAR) was down by more than a half over its third quarter. September RevPAR in EMEAA relative to last year deteroriated compared to the prior month, sitting 70 per cent down compared with a 66 per cent deficit in August. InterContinental continued its recovery in the Americas and Greater China in September, however. |
| Airtel Africa (AAF) | The Africa-based telecommunications company saw its operating profit grow by a fifth in the first half to $472m (£360m). Management has declared an interim dividend of 1.5 cents per share. |
UK retail sales rose 1.5 per cent in September and were 4.7 per cent higher than a year ago. Ex auto and fuel was +6.4 per cent yoy. However, consumer confidence is tumbling – the GfK survey fell 6pts to –31. The UK consumer is resilient, but with fresh lockdowns and the prospect of a long winter retailers will find the going tough again.
There was a lift for travel stocks with news that popular tourist destinations, including the Canary Islands, Maldives, Mykonos and Denmark have been taken off the UK’s quarantine list. EasyJet +2 per cent and TUI +3 per cent. Carnival +5 per cent yesterday in the US and +3 per cent today in London amid reports that the No Sail Order will lapse at the end of the month with Trump having an eye on Florida jobs.
In the US, Gilead shares rose 7 per cent in after-hours trade on news that its Remdesivir (Veklury) drug had won FDA approval for the treatment of Covid-19. Tesla was flat after earnings – shares may be affected today by a recall in China. Intel shares tumbled 10 per cent after-hours as data centre sales were weaker than expected. The company posted net income of $4.3 billion in Q3, or $1.02 a share, down more than 28 per cent from a year ago. It was like a different market yesterday from another time: Ford, American Airlines, Bank of America and General Electric rose 3-5 per cent, while Apple fell 1 per cent. Mattel +7 per cent after-hours as parents splurged on toys to keep children entertained in the absence of being able to actually do things.
According to JPM, 70 per cent of Stoxx600 companies have beaten EPS estimates, which is a ten-year high and probably tells us more about how much expectations had been lowered as much as it indicates a strong quarterly performance by European corporates. In FX land, cable was a cent off Wednesday’s highs at 1.3070 as the dollar put in a rally yesterday.
Election Watch
The debate won’t move the needle for determined voters. Polling shows Biden +7.9 per cent nationally and +4.1pts in the battlegrounds. Betting odds are unchanged at 65/35 in favour of the Democrat. Even if the polls move before polling day, millions of ballots have already been cast.
Curve steepening
Neil Wilson is chief markets analyst at Markets.com
