Dollar down, nominal yields up, risk bid: has the market already priced in a Democrat clean sweep? Equity markets braced for the election with a strong showing on Monday, recovering ground after last week’s drubbing, and extended gains on Tuesday morning. There is a strong bid for risk early doors, with stocks in Europe rising +1 per cent, the dollar down ~0.5 per cent to 93.75 from 94.30 at yesterday’s highs, and WTI crude oil (Dec) up +1 per cent and touching on $38 as it continues to break out to the upside. The FTSE 100 has recovered 5,700 on broad based gains with only really ABF falling on a dividend cut. The mentality right now is to buy the dip ahead of the election.
UK Company Announcements
| Associated British Foods (ABF) | The owner of Primark recorded a 12 per cent drop in full-year revenue to £14bn, while Primark itself experienced an £800m cash outflow when its stores were closed. ABF has been encouraged by the performance of its fast fashion retailer, which lacks an online sales channel, since it reopened its doors in May. But it warned yesterday that enforced closures across Europe would cost it £357m in lost sales linked to these outlets. |
| Weir (WEIR) | The resources services company said mining orders were down 27 per cent on the September quarter last year. The oil and gas division, which has been sold to Caterpillar, saw a 56 per cent drop on last year. Its shares were up 3 per cent on the trading update. |
| G4S (GFS) | Following a report from Bloomberg, G4S has confirmed that it rejected a takeover bid from US competitor Allied Universal Security for “at least 210p a share”. The group says that the “highly conditional indicative offer” significantly undervalues its business and prospects. The proposal is higher than the 190p per share offer from GardaWorld that shareholders are set to vote on. G4S’s shares were up 5 per cent in early trading at 216p, suggesting that investors are expecting a higher bid to emerge. |
| Warehouse Reit (WHR) | The logisitics specialist reported an 8 per cent uplift in its EPRA net tangible asset value during the first half of the year, driven by gains in the portfolio value. Dividend payments were 3.1p a share. |
| Premier Oil (PMO) | The struggling oil company's creditors have backed a takeover by Chryasor and new debt arrangement that will see them get around 75c on the dollar back on their loans. Last month, Premier announced the private North Sea producer would take it over, leaving shareholders with 5 per cent of the combined entity. |
| Telit Communications (TCM) | Telit has received a possible offer from asset management firm DBAY Advisors. The company also said that it had rejected an approach from Latronix (US:LTRX), a Nasdaq-listed hardware company, but is still in discussions about a possible transaction. Management noted that any offer is likely to be Latronix shares. |
| Crest Nicholson (CRST) | Adjusted pre-tax profits are now expected to come in at the higher-end of the £35m-£45m guidance thanks to surging demand since the housing market reopened. The housebuilder also announced it would reinstate dividends at the interim-mark next year. |
| Senior (SNR) | Reflecting the grounding of Boeing’s (US:BA) 737 Max jet and the Covid-19 crisis, aerospace sales in the nine months to 30 September were 36 per cent lower than a year earlier on a constant currency basis. A “meaningful” recovery in group revenue is not expected until 2022, with the aerospace market guided to be “at least as challenging as 2020” next year. |
| Chemring (CHG) | The group expects that adjusted operating profit for the year ending 31 October will be at the top end of analysts’ expectations – company-compiled consensus is for £47m-53m. Chemring is sitting on a £476m order book and is guiding that net debt will come down by more than a third to £48m. |
| DS Smith (SMDS) | Corrugated box volumes for the six months to 31 October are expected to be 1.5 per cent lower than a year earlier. Profit for the first half is also set to be lower year-on-year, but amid an improvement in performance across the second quarter, DS Smith has reiterated its intention to declare an interim dividend. |
| IWG (IWG) | The group says that the impact of the pandemic has been “greater than we imagined”. The three months to 30 September saw revenue drop by 10 per cent year-on-year at constant currencies to £583m. Occupancy for more mature centres that were opened before 2019 fell by 4.1 percentage points to 70.5 per cent. |
Is this greater confidence about a Biden win, or simply a bit of buying on oversold conditions from last week’s decline? It’s hard to really say – the election looms and we are expecting volatility as results come through later. Certainly a clean result on the night is what markets are hoping for – whether it’s Biden (higher yields, Value positive) or Trump (Yesterday, the S&P 500 rallied over 1.2 per cent to reclaim its 100-day simple moving average at 3310 by the close. Value sectors prospered and led tech, perhaps on expectations of a Biden triumph leading to stimulus and infrastructure spending.
Voting in the US presidential election ends today – most ballots have already been cast. Watch for the early call from Florida – almost every president for the last 100 years has won this state and it remains too close to call. Biden leads in several key states and takes a 2.8pt lead in the battlegrounds heading into polling day. Now we turn to the results - be careful with exit polls – they don’t have the best track record. Polls in Florida close at 7pm EST (midnight GMT), so we should start to see markets moving after this on calls being made by pollsters and forecasters. From 8pm we start to get a feel for the rust belt states of Ohio, Pennsylvania, Wisconsin and Michigan – all states Trump needs to win. 3 of those 4 should do it if Florida goes red along with Georgia. But ensuring a clean picture of who’s won will be even more challenging this time due to the large number of postal votes. Delays will be inevitable, but it is unclear whether this is material – if Biden performs as the polls indicate it won’t matter much.
Donald Trump has already suffered two defeats, after judges rejected Republican attempts to nullify thousands of early votes cast in Texas and Nevada. Mr Trump has already said he will throw his lawyers at Pennsylvania after the Supreme Court extended the deadline for mail-in votes. It tends to point to a real prospect of a disputed result if things are tight on the night.
The Reserve Bank of Australia eased as expected with a 15bps cut to the cash rate to a new record low of 0.1 per cent, whilst it also lowered the three-year yield target and its Term Funding rate to 0.1 per cent from 0.25 per cent as well. The RBA also pledged to buy A$100bn worth of bonds over six months as part of an expanded QE programme. Governor Philip Lowe stressed the RBA is not financing the government and that negative rates were “extraordinarily unlikely”. Nevertheless, the path of the global economic recovery remains patchy and the RBA may decide to expand its QE programme further still.
AUDUSD strengthened to 0.7080 as it peeled further away from the bottom of the wedge at 0.70. Near-term trend line resistance seen around 0.7140.
Neil Wilson is chief markets analyst at Markets.com
