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Market Outlook: Stocks mixed after vaccine melt-up, Persimmon, LandSec & more

Shares in London are broadly in early trading, building on yesterday's surge, Persimmon, Landsec & more
Market Outlook: Stocks mixed after vaccine melt-up, Persimmon, LandSec &  more

First the relief, now for a wee dose of reality. Stock markets are looking a little more cautious after yesterday’s massive surge on news that Pfizer and Biontech have a vaccine that is 90 per cent effective – investors will now show a tad more caution that the kneejerk rally is out of the way. Markets have a habit of overshooting on the way down, and on the way back up. Nevertheless, an effective vaccine changes the game for investors, at the very least in terms of relative valuations and the premium we are willing to pay for growth.

We have a lot more clarity now than a week ago for two big reasons. Joe Biden is all but certain to become the next president of the United States. More importantly, a vaccine is coming. The worst fears - of enduring year after year of masks, of having semi-permanent lockdowns and restrictions on our liberties lasting forever - should not come to pass. All we need now is a Brexit deal this week as the cherry on the cake. What we in Britain and Europe need more than anything is a confidence injection – and a working vaccine does that. A comprehensive FTA with the EU would help, too.

The FTSE 100 rose over 4.6 per cent, settling just under 6,200. The DAX rose almost 5 per cent and the CAC in Paris was up almost 8 per cent. US stocks opened considerably higher as they took the cue from Europe, but closed less in the green. The Dow rallied 800 points but that was about half the gains at the high of the day, which was a new intra-day peak. The S&P 500 finished up over 1 per cent but also at the lows of the day. In a clear signal of a major rotation from growth to value, the Nasdaq 100 fell over 2 per cent, while the Russell 2000 climbed over 4 per cent. This is a trade that seems to have legs. Due to the makeup of indices and heavy reliance on the big tech names (5 big tech names make up about a quarter of the S&P 500), rotation of this nature may act as a headwind and means it’s not a straight line up. It will be messy as portfolios rebalance and we can expect more outsize moves in some of the most exposed stocks to the vaccine. But, overall, the landscape for equity markets is favourable.

UK Company Announcements

Persimmon (PSN)

The average weekly private sales rate was 38 per cent higher during the four months to November, compared with the prior year, and net cash had risen to £960m. As a result, management declared a second interim dividend of 70p a share, which will be paid on 14 December and follows a 40p payment in September.

Landsec (LAND)

The loss before tax rose to £835m during the first-half after the value of the portfolio declined 7.7 per cent, driven by the retail and leisure assets. The landlord also took an additional £87m provision for unpaid rents. However, as expected, management did reinstate a 12p a share dividend, which will be paid on 4 January.

Signature Aviation (SIG)

Revenue from continuing operations dipped by 38 per cent year-on-year in the ten months to 31 October. US flight activity recovered to 80 per cent of prior year levels last month and is expected to remain at this level for the rest of the year. The group is sitting on $462m (£351m) of liquidity.

Capita (CPI)

Revenue for the three months to 30 September fell by 11 per cent year-on-year to £902m thanks to pandemic-driven weakness in the group’s travel and training businesses and contract losses from 2019. Adjusted operating profit did, however, remain flat at £66m. The disposal of the education software business remains ongoing.

Meggitt (MGGT)

Revenue for the third quarter ending 30 September came in 25 per cent lower than a year earlier at £384m, although this is an improvement from the 30 per cent shortfall seen in the second quarter. Growth in defence was more than offset by weakness in civil aerospace. The group is guiding to £180m-200m of underlying operating profit for the full year, down from £403m in 2019.

Ceres Power (CWR)

Korean fuel cell developer Doosan has struck an agreement with shipping services company Navig8 to develop a solid oxide fuel cell system based on Ceres’ technology. This follows Ceres announcing a strategic collaboration with Doosan earlier this year which includes building a 50 megawatt (MW) plant to manufacture its fuel cell stacks.

Manolete Partners (MANO)

Shares in the insolvency litigation finance group are up 11 per cent this morning, after posting a 49 per cent increase in pre-tax profit for the six months to September. Cash generation continues to lag, despite the company's "ability to deliver rapid case realisation times".

Direct Line (DLG)

A 10 per cent rise in commercial policies written softened falling premiums across the insurer's motor, home and resuce lines in the third quarter of 2020, while investors were once again warned over the uncertain implications of the FCA's pricing practices report.

Electrocomponents (ECM)

Electrocomponents reintroduced its dividend at its half-year results, as well as paying its previously deferred 2020 final dividend as an additional payout. The industrial products group recorded a 38 per cent drop to pre-tax profits, which fell to £55.6m, although net debt nearly halved from £220.7m to £114.8m, sitting at half its adjusted cash profits (Ebitda).

Premier Foods (PFD)

Strong demand for branded product ranges meant that pre-tax profits grew by more than threefold to £51m in the first half. Meanwhile, the group’s net debt to cash profits (Ebitda) multiple lowered to 2.3, compared to 2.7 in March.

DCC (DCC)

Adjusted operating profit increased by 8 per cent year-on-year in the six months to 30 September, to £176m. This reflects weakness in the liquefied petroleum gas (LPG) business being more than offset by higher demand for healthcare products and good cost control in its ‘retail and oil’ operations. Despite a “very uncertain” outlook, the group has lifted its interim dividend by 5 per cent to 51.95p.

BP (BP.)

The oil and gas giant has signed an agreement with Ørsted to study the possible addition of a 50 megawatt hydrogen plant to its Lingen refinery in Germany. BP said this electrolyser would be first "full-scale" hydrogen project, and an investment decision is expected in 2022.

Yesterday we saw some very high volumes in some of the stocks worst affected by the pandemic on the platform. S&P 500 volume leaders included American Airlines (+15 per cent), Pfizer (+7.7 per cent) and Carnival (+39 per cent). Netflix (-9 per cent) and Zoom (-17 per cent) indicated the degree to which the stay-at-home trade was unwound. On the UK market, there was big volume in Cineworld (+40 per cent), IAG (+25 per cent) Rolls-Royce (+44 per cent), whilst Ocado (-12 per cent) and JustEat (-9 per cent) were offered as part of the rotation.  
We do have some uncomfortable questions to answer – does a vaccine on the near horizon preclude more stimulus? Perhaps, a lot depends on the Senate runoffs in Georgia, but the US economy needs a bridge to get to the sunlit uplands of vaccine country. Europe can’t even get its stimulus delivered, whilst in the UK the government continues to offer support to business but does not seem willing to acknowledge the other problems created by lockdowns – a vaccine may give them further excuse to restrict liberties as ‘it will only be for a little longer’. The vaccine won’t stop this from being a very tough winter in Britain, Europe and elsewhere. Data this morning showed the UK unemployment rate in the three months to September rose to 4.8% as the number of people out of work rose by 243,000.

Does a vaccine change the game for the Fed? It ought to, but if experience is anything to go by, the Fed won’t want to rock the boat anytime soon. Several Fed speakers on tap this week will give a clue – expect them to stress the need for fiscal support now as a vaccine won’t available en masse for some months. Overall, the outlook for markets is a lot more positive. 

European markets are trading a bit mixed this morning. The FTSE 100 rose above 6,200 while the DAX faded 0.5% to 13,000. Travel stocks rose again on Tuesday, building on some very big gains notched in the previous session. So too did banks – a vaccine will steepen the yield curve which will make a significant difference to banks’ net interest margins. It should also help limit credit impairments. 

Treasury yields rose – the US 10-year yield leapt to 0.94 per cent, the highest since March, which sent the 2yr/10yr spread to its widest in almost three years. Gold sank to the bottom of the recent range, testing the Sep lows at $1,850 before catching some bid to recover to around $1,887 this morning. UK 10 year gilt yields also jumped to its highest level in some months at 0.377 per cent. In FX, the vaccine could help risk-on currencies like sterling and the Aussie. GBPUSD advanced to 1.32 and trades with upside momentum in play. Brexit talks this week threaten headline risk but increasingly the market believes that the posturing over fishing rights and level playing fields will give way to the cold, hard reality of securing a deal in time for Christmas. 

 

Neil Wilson is chief markets analyst at Markets.com