European stocks moved tentatively to the upside after a record-breaking session on Wall Street in the previous session. US stocks are on course for their best month since 1987 with the Dow Jones up over 13 per cent so far. The mood in global markets has been lifted by a combination of three doses of very encouraging vaccine news, the US election finally being ‘settled’, and I think it’s worth noting the appointment of Janet Yellen to the US Treasury. She’s someone who, as Fed chair, repeatedly called on the Treasury to do more and is viewed as a dove in relation to the deficit. Her first task won’t be made any easier after incumbent Steve Mnuchin moved to tied up $55bn in unspent Cares Act funding in a pot that will require Congressional approval to spend.
The Dow Jones industrial average smashed through 30,000 for the first time and in a sign of confidence in the move, closed above the level, too. Energy +5 per cent and Financials +4 per cent led the way as the rotation/reopening/reflation trade – whatever you want to call it – carried the day. The S&P 500 rallied 1.62 per cent to 3,635, while small caps led tech. The Russell 2000 is now up 20 per cent in November, its best ever month. President Trump called 30,000 for the Dow a ‘sacred number’.
Tesla shares rose another 6 per cent to $555. I can’t put this down to anything other than a kind of mania akin to Bitcoin ‘HODLers’ who simply love the security too much to ever part with it and are ‘holding on for dear life’. On that front, Bitcoin eased back off the highs after breaking $19,000 yesterday, hitting an intra-day high at $19,495. Bloomberg will call an all-time high if it exceeds $19,511.
In early trade this morning the FTSE 100 rose to 6,466, just breaking above last week’s high at 6,463. Jun 8th highs at 6,511 are the next level up to be taken out for the bullish trend to continue. The FTSE is up over 13 per cent this month alone, on course for its best monthly performance since 1989 but remains down over 14 per cent YTD – if you think we get back to where things were before the pandemic at the end of 2019, there is plenty more upside to get to that level. Over in Europe, the ECB says it may lift the ban on bank dividends next year.
UK Company Announcements
| AB Dynamics (ABP) | AB Dynamics' full-year pre-tax profits more than halved to £5m from £11m in 2019. The automotive testing systems manufacturer's revenues rose 6 per cent to £61.5m but profits were dampened by £8.2m in capital expenditure. The company said that the second coronavirus wave had made order patterns hard to predict for 2021. |
| Future (FUTR) | The digital media company has made a £594m offer to buy GoCo Group (GOCO), the price comparison website. The bid values the shares at 136p, at a 23.6 per cent premium to yesterday’s closing price. Separately, Future posted an 90 per cent rise in operating profits to £50.7m in 2020. |
| AA (AA.) | Finally, after repeated extensions to the offer timetable, the AA has got its 35p-a-share offer from private equity firms Warburg Pincus and TowerBrook Capital. Shareholders should accept what looks like a very generous offer for the equity. |
| G4S (GFS) | The group is continuing to recommend that shareholders reject the 190p per share hostile takeover bid from GardaWorld. Striking a confident tone on its outlook, G4S believes it will be able to deliver over £1bn of free cash flow between 2021 and 2025. As such, it plans to resume dividend payments from next year and says there could be further shareholder returns from disposal proceeds. |
| Lookers (LOOK) | The car retailer released its much-delayed 2019 annual results following its fraud investigation and additional work on its accounts by Grant Thornton. Lookers fell into a pre-tax loss of £45.5m compared with profits of £41.9m in the previous year, while the company has made £25.5m in adjustments to correct the overstatement of profits over several years. Lookers intends to release its delayed interim results next month before applying to restore the trading of its shares. |
| Kingfisher (KGF) | Kingfisher has acquired NeedHelp, a European online home improvements marketplace, for €10m. Founded in France, NeedHelp has presence in a host of European nations and Kingfisher intends to extend this footprint to the UK and Poland. |
| James Latham (LTHM) | The timber distributor increased its interim dividend to 5.7p from 5.5p last year despite evenues for the half falling by 15 per cent to £107m, with pre-tax profits edging down by nearly a quarter. Trading recovered in its second quarter when income rose by 5 per cent. |
| United Utilities (UU.) | Mirroring Pennon, the group has been similarly hit by Ofwat’s new price controls and lower water consumption by business customers. Underlying operating dipped by 19 per cent year-on-year in the six months to 30 September to £392m, which also reflects the impact of higher investment in its network. The interim dividend has been increased by 1.5 per cent to 14.41p per share. |
| Liontrust Asset Managament (LIO) | Signalling confidence for the coming year, the active fund manager has raised its interim dividend by 22 per cent to 11p a share, even as acquisition costs and intangible amortisation dented statutory profits. Assets under management stood at £28.1bn on 20 November, just shy of analysts' consensus forecast for the end of March. |
| Virgin Money UK (VMUK) | After a frothy run, the lender's shares are off 8 per cent today after loss-making full-year numbers reminded investors of the profound uncertainty facing UK banks. On the plus side, asset quality remains resilient. |
| Brewin Dolphin (BRW) | Though adjusted diluted earnings of 20.4p per share for the year to September beat consensus forecasts, investors appear to have taken its lead from the wealth manager's cautious tone around the "challenging against economic and social headwinds" facing markets. |
| Alpha FMC (AFM) | The asset management consultancy posted a 2.5 per cent increase in adjusted EPS in the six months to September, despite a 10 per cent rise in the top line. Thinner margins aside, investors will likely welcome a strong group cash position and restoration of the interim dividend. |
| Helical (HLCL) | The value of the investment portfolio declined by 0.5 per cent during the six months to September, but new lettings were completed at an average 12.4 per cent above estimated rental values at the end of March. The interim dividend was maintained at 2.7p a share. |
In FX, the dollar is offered with DXY dropping under the big 92 number and now faces key support at 91.70, the September low. Flows are indicating moves out of USD into EM, while the euro is also making progress with EURUSD at 3-month highs above 1.19. GBPUSD was steady around 1.3350, close to its recent highs. Relative silence over Brexit talks in the last couple of days is only raising expectations that there is a deal in the offing. Rishi Sunak to deliver his Spending Review later today. Spoiler alert: the public finances are awful and the Chancellor will prioritise protecting jobs. It’ll be a lot of green stuff, a lot of levelling up not down but he probably doesn’t think it’s time yet to turn the screw on investors with a hike to capital gains tax.
With the US Thanksgiving holiday tomorrow, we get a slew of data today from across the pond. US durable goods seen at +1 per cent vs +1.9 per cent last month, with the core reading expected at 0.5 per cent vs 0.9 per cent previously. Initial jobless claims seen at 732k, vs 742k last week. Continuing claims are see falling to 6m. Preliminary GDP figures for the third quarter (second reading) expected to be unchanged from the first reading at +33.1 per cent. Core PCE index seen flat after +0.2 per cent last time, with the personal spending down to +0.4 per cent from +1.4 per cent last month and personal income down to 0 per cent from +0.9 per cent previously.
Crude oil marched higher as the risk-on sentiment overcame doubts about demand over the winter. Whilst momentum is strong to the upside, near-term inventory builds still need to be watched. There is a risk that also that the recovery in prices is an overshoot when considering near term demand problems. The rally may also dissuade some OPEC members and allies from delaying the tapering of production cuts in the New Year. Technically, the 14-day RSI has reached overbought levels on WTI as it trades above $45, with Brent above $48.
Gold slipped but found support at the 200-day moving average support on $1,800. What’s interesting is that the breakdown in gold has occurred even as real rates declined deeper into negative territory. Turning to Goldman Sachs for explanation: "We believe it is due to a combination of pro-cyclical rotation in equities combined with lack of increase in breakeven inflation expectations, which drove gold higher in late spring/summer. Therefore, gold suffered from strong rotation without reflation.”
Neil Wilson is chief markets analyst at Markets.com
