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Market Outlook: Markets at a crossroads

Some marginal profit taking is in evidence across London's main indices this morning
November 13, 2020

European markets were mixed as investors figure out what to do next after the exuberant vaccine-induced rally and following a soft session on Wall Street. Central bankers warned that a vaccine was not enough to end all the economic challenges, whilst oil fell after a big build in crude stockpiles. The dollar was steady as US 10-year yields declined to 0.88 per cent. 

The FTSE 100 dipped under 6,300 and the DAX struggled to hold 13,000. Energy and financials were the weakest, with tech, utilities and healthcare strongest in early trade as investors took a more risk-averse approach. Yesterday the S&P 500 and Dow Jones both fell 1 per cent. Whilst there is great hope for next year because of the vaccine, we are far from out of the worst of the pandemic – US cases are surging at record levels and lockdown measures persist in Europe. Airlines and travel fell sharply as profits were taken after some very large moves this week.  The question for investors is whether they think there are enough incremental buyers on the side lines to drive markets higher. The question is really one for the bond market - the wall of cash sitting idle will be deployed if rates stay low and go even lower.

UK Company Announcements

Galliford Try (GFRD)

All projects have been fully operational since the beginning of July and productivity is also near normal levels. There has been no adverse impact from the second national lockdown. The group expects to return to profit in the six months to 31 December and reinstate its dividend. Average month end cash for the first half of the year is expected to come in at the upper end of the £125m-145m guided range.

Castings (CGS)

With the commercial vehicle sector accounting for 70 per cent of total sales, Covid-19 disruption saw Castings’ output drop by 80 per cent in April and May. The group swung to a £1.3m adjusted operating loss in the six months to 30 September versus a £7.2m profit a year earlier. Still, net cash has increased by 5 per cent to £35m and it is handing shareholders an increased interim dividend of 3.57p per share.

WTI crude oil (Dec) declined to $40 after an unexpectedly large build in crude oil inventories. The EIA said crude stocks rose by 4.3m barrels in the week ended 6 November, at odds with the 5.1m barrel draw reported by the API. Shutdowns created by the pandemic are problematic for assessing oil demand and we note that industry groups have revised their demand forecasts down lately, signalling that it won’t be back to normal at least until the second half of 2021. 

Donald Trump has taken a step back from stimulus talks, leaving it to Congress as he fights the election monitors. With Republicans arguing for $800bn and Democrats chasing $2.4tn it’s not likely that they will agree anything immediately. Meanwhile the president signed an executive order banning American investments in Chinese companies linked to the government or military. Shares in China Mobile, China Telecom and Hikvision fell.  

Gold is steady around the $1,880 level and whilst support around $1,850 is there, we may see a deeper correction before prices can start to regain their all-time highs. Goldman has a note out today saying gold can hit $2,300 next year on the reflation angle as real yields get pushed deeper into negative territory.

 

Neil Wilson is chief markets analyst at Markets.com