With the US election just around the corner, equity markets may continue to track sideways as they await the outcome and remain on the hook for headlines around stimulus and the spread of the virus. We can expect volatility but no clear trend until the election is out of the way. A Democrat clean sweep would unleash a massive deluge of stimulus, but tax reforms could see a wave of selling before Christmas in anticipation of beating a hike to capital gains tax.
Asian shares were flat to lower overnight. US futures down 1 per cent. The S&P rallied 0.34 per cent on Friday to end the week at 3,465. European shares opened lower erasing Friday’s bump after another tough week. SAP results weighed heavily on the DAX, which was down –2.5 per cent in early trade, while the FTSE 100 was -0.5 per cent. WTI (DEC) slumped to $38.50 after Libya said it could raise output to 1m barrels a day within four weeks. Supply side concerns are heaped on top of rising demand side concerns as the winter approaches.
Not a huge amount of news flow this morning but it’s set to be a very busy week with earnings season continuing over on Wall Street as 183 S&P 500 companies report including Big Tech. Apple, Amazon, Microsoft, Alphabet and Facebook are among the biggest names delivering their quarterly updates. Meanwhile central banks are in action aplenty with the Bank of Japan, Bank of Canada and European Central Bank all holding policy meetings.
AstraZeneca shares rose by one per cent after the firm is reportedly seeing a strong immune response from its coronavirus vaccine in older people. It comes as the FDA allows AstraZeneca to restart trials in the US, meaning clinical trials have now fully resumed globally. Additionally, a spokesman said latest results build the body of evidence for the safety and immunogenicity – the ability to produce an immune response – of the vaccine candidate. Meanwhile separate reports suggested that a large London hospital will start receiving vaccine stocks in November – though health secretary Matt Hancock was swiftly on the wires to say that he does not expect health workers to be receiving the Astra Oxford vaccine this year. AZN +1 per cent in early trade.
SAP shares in Germany fell 20 per cent in early trade before paring losses to trade -16 per cent after it cut its 2020 sales outlook citing weak demand for cloud services – potential knock-on for MSFT, AMZN.
With broad-based selling taking place at the European open, reports that UK regulators will allow banks to start paying dividends again next year failed to deliver any bid on the open. However shares in Lloyds, Barclays and HSBC bounced and turned positive as investors finally woke up the prospect of dividends resuming - momentum can build with divis seriously on the table again. HSBC reports this week – all eyes on whether it feels confident to start payments to shareholders again. Dividends at last year’s levels would equate to roughly 12 per cent yield.
Ant Financial is on track to become the world’s biggest ever IPO with shares set to price tomorrow – although Jack Ma said over the weekend the company has already determined the price. Ant will list simultaneously in Hong Kong and Shanghai in the coming weeks. It’s expected to raise $30bn, which would surpass Saudi Aramco’s $29.4bn record set last year, will likely use the ‘greenshoe’ option worth another $5bn to meet demand, which is reaching mania-like levels among local retail investors, according to several reports. Institutional demand is also seen being very strong.
Brexit talks will continue after talks between Frost and Barnier in London were extended through to Wednesday this week, whilst sources indicate that there are plans to carry on the party in Brussels from Thursday. GBPUSD started the session weaker as the dollar caught some bid overnight. Cable dipped to 1.30 and a test of the 50-day SMA. The dollar index has recovered 93 near the top of the Wed-Fri range.
The euro was trading steady to a little weaker after Italian bond yields fell in the wake of Friday’s upgrade from S&P. Italy’s debt was raised from BBB negative to BBB stable. The move has narrowed the bund-BTPs spread and comes ahead of the ECB meeting and Christine ‘we’re not here to narrow spreads’ Lagarde presser afterwards on Thursday. I looked at this in more detail in the week ahead, it’s clear that with virus restrictions being reimposed and the risk of a double dip recession rising, it’s clear that the assumptions for growth contained in the ECB’s September report look out of step with reality. Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December, and may use this week’s meeting to hint as such.
UK company announcements
| Avon Rubber (AVON) | The group has received US regulatory approval for its $130m (£100m) acquisition of helmet specialist Team Wendy. The transaction is expected to complete on 2 November. |
| Danakali (DNK) | The company had agreed a $50m (£38m) equity investment from Africa Finance Corporation (AFC) back in December to help develop its Colluli fertiliser project. But it believes it will be unable to satisfy the required conditions for the second tranche of financing by the 21 November deadline. As such, Danakali is now in discussions with AFC to find a mutually suitable funding structure so that construction can commence and production begin in 2022. |
| Augean (AUG) | HMRC has repaid the company £1.6m of landfill tax as part of an ongoing dispute. Augean had been accused by HMRC of underpaying £40.4m of landfill tax and interest and it paid off these assessments in full in December while also pursuing an appeal. The company is now awaiting a tax tribunal decision on a larger £16m repayment. |
| The Hut Group (THG) | The Hut Group lifted its full-year sales guidance from £1.43bn to a range of £1.48bn to £1.52bn, after recording sales growth of 39 per cent over its third quarter. Sales in its beauty division rose by nearly a half. |
| St James' Place (STJ) | In an open letter, shareholder PrimeStone Capital has accused the wealth adviser of failing to deliver for investors, and called on the board to reform "a bloated organisational structure" and its "overly generous" compensation, exit its Asian business and improve financial communication. |
US President Donald Trump signs some pumpkins as he meets with people at Treworgy Orchards during a campaign stop in Levant, Maine
Election watch
The last week of campaigning, but voting is already gathering pace. Joe Biden leads by 8 points nationally, but by just 3.8 points in the battlegrounds. He was closer to Clinton at this point – but comparisons with 2016 may not be relevant when so many people have already voted. Trump is showing tremendous energy, embarking on a frenzy of campaign events, while Sleepy Joe is just trying not to lose.
