Easing ain’t as easy as it looks: The Bank of England increased its programme of government bond purchases by an additional £150bn. This was more than the market was expecting and took the total stock of government bond purchases to £875 billion. That said, the BoE had pretty well telegraphed this move yesterday when it decided to bring the decision forward from 12 noon to 7am – most pundits assumed that this meant a monetary policy decision of note that the BoE didn’t want to get entangled with the chancellor’s latest pandemic statement. Interest rates were kept at 0.1 per cent and the MPC voted 9-0 for the measures. There was no talk of negative rates, just mention of the risks to the currency being to the downside. That may be, but sterling rallied as there was no surprise rate cut and no mention of plans to take rates negative. GBPUSD rose sharply from 1.2940 to above 1.30 after the announcement, eyeing near-term resistance peaks at 1.3050 and then the 1.3140 high at the peak of the ‘blue wave’ dollar selling on election night before the results showed a much tighter race than polls indicated.
Keep up to date with the latest developments in the US election with our rolling article here.
UK Company Announcements
| AstraZeneca (AZN) | In a Q3 update, the pharma group reported continued progress at its oncology business and earnings growth through the quarter. But it was forced to take on extra costs due to Covid-19, while the pandemic also led to a reduction in clinical appointments and diagnoses, reducing demand. Separately, it was reported that the group has a good chance of delivering late-phase data on its COVID-19 vaccine this year. FY guidance has been maintained. |
| Sainsbury (SBRY) | The six months to 19 September saw retail sales (excluding fuel) climb by 7 per cent year-on-year to £14.8bn. Underlying pre-tax profit increased by more than a quarter to £301m, but the group swung to a £137m statutory pre-tax loss thanks to £480m of restructuring and impairment charges. Full year underlying pre-tax profit is now guided to increase by at least five per cent versus previous expectations that it would come in flat. |
| Auto Trader (AUTO) | Auto Trader's half-year pre-tax profits almost halved to £66.2m from £127.7m over the same period last year. Demand on the platform has sat at a fifth above normal levels since early June, and Auto Trader's second quarter operating profits of £66.8m were in line with those of last year. But the company opted not to pay an interim dividend following the government's lockdown announcement last week. |
| Derwent London (DLN) | Rent collection for the final quarter has risen to 86 per cent, from 80 per cent at mid-October. Despite the England entering a second lockdown, the office landlord has committed an initial £14m to its major development, at Baker Street. |
| Wizz Air (WIZZ) | The carrier swung to a loss at the half-year mark, with a collapse in air traffic numbers through the first half. Over the period Wizz flew 6.5m passengers, a 70 per cent reduction year-on-year, though its capacity rate was up on the industry average. |
| N Brown (BWNG) | The retailer launched a £100m equity raise alongside the release of its half-year results, which included pre-tax profits falling by a quarter to £14.1m. N Brown has also proposed moving its share listing to AIM from the main London market. |
| Rank Group (RNK) | The gaming operator has acknowledged press speculation and admitted that it is in talks to issue equity equivalent to a fifth of its present issued shares. Rank Group's market cap sits at £347m. |
| Superdry (SDRY) | Superdry half-year turnover fell by 23.3 per cent, with a slight improvement in its second quarter. The retailer has boosted promotional activity in response to the coronavirus pandemic, which is weighing upon margins. Online sales, however, rose by more than a half. |
| TalkTalk (TALK) | The broadband operator has requested the extension of the deadline for Toscafund Asset Management to make a firm offer for the company to 3rd December, instead of by the end of today. TalkTalk noted that commercial discussions and due diligence are progressing, in a proposal that valued it at £1.1bn. |
| Aveva (AVV) | The industrial software group’s top-line slipped 15 per cent in the six months ended in September, as two medium-sized deals slipped into the second half. Management noted that its $5bn (£3.8bn) acquisition of OSISoft is expected to complete between December 2020 and February 2021. |
| RSA (RSA) | Third quarter results paint a mixed picture: despite September's court ruling around Covid-19 business interruption claims, the general insurer recorded a respectable combined ratio of 90 per cent. However, profits and new premiums are down. |
| Paypoint (PAY) | The retail payments specialist has launched a push into several new SME sectors, via the acquisition of card payments business Handepay and terminals outfit Merchant Rentals. The £70m all-cash deal is expected to complete this year and boost earnings within the first year of ownership. |
| Lancashire (LRE) | Though the hype which greeted the insurer's June fundraising has faded, investors today have some assurance that this year's Covid-19 loss estimate of $42m is unchanged. The group's renewal price index is now also up 112 per cent for the year to September. |
| Biffa (BIFF) | Amid the collapse in industrial and commercial (I&C) waste volumes during the first Covid-19 lockdown, underlying operating profit plunged by almost 80 per cent in the six months to 25 September to £9.7m. I&C volumes recovered to 96 per cent of prior levels in October and Biffa expects they will drop to 70-75 per cent during the second lockdown. |
| Wincanton (WIN) | Revenue dipped by 2 per cent to £579m in the six months to 30 September as strong demand for e-fulfilment services was offset by weaker construction, energy and container markets. The group has reinstated its dividend and is guiding that full year results will be “materially ahead” of current market expectations. |
Trump’s election chances hang by a mainly legal thread now that Joe Biden has secured Wisconsin and Michigan. Nevada resumes counting today with Biden having a tiny lead in the state and 25 per cent of the vote yet to count – you think this would favour the Democrat. Meanwhile, NBC projects that Nebraska’s 2nd Congressional District will swing it for Biden. Legal challenges from Trump are incoming in Wisconsin and Georgia but unlikely to be a material drag – excluding some attempts to block counts and question the validity of some ballots, the smooth transition of power was never really in doubt. But it’s clear there has been no Blue Wave. The Democrats’ chances of flipping the Senate to Blue appear to have gone, though counting continues. America remains as divided as ever, with a Blue White House needing to work with a Red Senate, some of the more extreme tendencies of the Democrats will be handicapped. The worst of the volatility is behind us and while we need to get through these legal challenges, a return to a Blue White House and Red Senate may result is a calmer policy situation (fingers crossed!).
It looks almost certain we will get the ‘So Mauve’ outcome from our election playbook (Biden win, Senate stays red). This implies a degree of gridlock in Washington, which ex-stimulus is not always a bad thing for the market:
· Less uncertainty over policy likely to support equities, particularly Big Tech, whilst a Biden presidency ought to see some degree of a reset with trade partners that would boost sentiment and corporate earnings.
· Stimulus delays could create near-term volatility, but it would be in no one’s interests to drag their feet for long given any ballot box risk would be two years away.
· Tax uncertainty removed = +ve for equity valuations, especially Growth
· Improvement in trade relations with partners and China could see EM supported as well as European equities/currency – would also tend to boost US corporate earnings
· Not as bad for the dollar as a Blue Wave result with trade reset likely to support flows, also less fiscal expansion a factor, but USD seen weaker in this outcome as part of broader downtrend.
US and European equities rallied Wednesday in the wake of the election and carried through with this positivity. Solid gains of 0.5 per cent registered on the FTSE 100 taking the blue chip index above 5,900 and the trend indicates a push to 6,000. There is clearly some relief in the markets that the election is (almost) behind us – as I’ve been saying the threat of a ‘crisis’ level disputed election (Trump refusing to leave office) was always overstated and a few days of court decisions won’t matter much for investors with a longer-term horizon, and it’s these flows that are driving things here.
The Blue Wave reflation trade clearly had to unwind - US 10 year yields have retreated to 0.73 per cent, from achieving a multi-month high on election night of 0.945 per cent. Financials fell, with shares in JPMorgan –3 per cent and Bank of America –4 per cent. Lower nominal rates also +ve for gold, with spot to $1,915 in early trade this morning.
Just to highlight how much Tech likes the result (i.e. no Democrat Senate to mess around with regulations and raise taxes, as well as no reflation trade to spark rotation out of growth to value), Nasdaq futures are up 10 per cent from their Monday lows. Amazon and Alphabet jumped 6 per cent, with Apple +4 per cent and Facebook rallying +8 per cent.
Neil Wilson is chief markets analyst at Markets.com
