Join our community of smart investors

Market Outlook: European stocks slide, Next upgrades but expects lockdown blow

The US Presidential election is less than a week away
October 28, 2020

European markets tumbled in anticipation of fresh coronavirus restrictions across the continent. France’s CAC 40 slumped 3.4 per cent this morning in advance of President Macron’s scheduled national address later today, amid rumours that the country is set to extend its current nighttime curfew and impose a nationwide lockdown. German Chancellor Angela Merkel is also expected to make an announcement. Germany’s DAX fell 3.2 per cent in early trading.

 

Jeremy Selwyn/AFP | Prime Minister Boris Johnson during his visit to Royal Berkshire NHS Hospital in Reading to mark the publication of a new review into hospital food

UK stocks also came under pressure from the prospect of tighter restrictions. Prime Minister Boris Johnson has been told by scientific advisors to prepare for a second wave that could culminate in more deaths than the first, according to The Telegraph, with the Sage scientific committee reportedly calling for the imposition of tier 3 limits across England by mid-December. The FTSE 100 fell 2.4 per cent in morning trading.

This fear is reflected in Next’s latest trading update. The retailer has lifted its pre-tax profit guidance for the year to £365m, an increase of £65m from its September central scenario. Sales for its third quarter edged up by 2.8 per cent, including finance interest income. Home and childrenswear sales are strong, online sales remain robust, and out of town retail parks continue to outperform the high street. But Next warned that a step-up in lockdowns could impact sales over its final quarter by as much as 20 per cent.

Company announcements

Next (NXT)

The retailer has lifted its pre-tax profit forecast for the year to £365m, an increase of £65m from its September central scenario, after sales for its third quarter edged up by 2.8 per cent including interest income. But Next warned that lockdowns could knock its fourth quarter sales by as much as 20 per cent.

Rolls-Royce (RR.)

The group has received the backing of shareholders to proceed with its £2bn rights issue. This will allow it to unlock £5bn of new funds in total, comprising the fully underwritten rights issue, £2bn-worth of bonds and a new £1bn loan facility. While not an insignificant sum, this may well prove a sticking plaster given the scale of Covid-19 disruption to the civil aerospace market.

Aston Martin (AML)

Aston Martin has raised £125m from investors, a day after announcing a 'strategic technology agreement' with Mercedes that could see the German car giant eventually own up to a fifth of the embattled luxury manufacturer.

Carnival (CCL)

Carnival's Princess Cruises operation has extended its pause on journeys leaving Australia and New Zealand through to 31 May 2021, in response to uncertainty over the removal of international travel restrictions.

Ibstock (IBST)

Full year adjusted cash profits (Ebitda) are guided to come in at £50m, which would be an almost 60 per cent decline versus 2019. Demand from housebuilding customers is increasing and overall volumes have now recovered to around 90 per cent of those seen a year earlier.

 

Brendan Smialowski/AFP | US President Donald Trump arrives at La Crosse Regional Airport October 27, 2020, in La Crosse, Wisconsin

This time next week, the dust will be settling on the outcome of the US presidential election. Markets will be making sense of either a second Trump term or, as present polling indicates, the more likely winner in President Joe Biden. Biden currently holds a 9.2 per cent lead across the US according to FiveThirtyEight polling, although bleary-eyed investors may well be looking at a contested result, which threatens to throw international politics and global markets into chaos for weeks. The Nasdaq added 0.6 per cent yesterday, while the S&P 500 closed 0.3 per cent down.

Oil prices stumbled this morning. The price of Brent Crude, the international benchmark, fell 3.2 per cent, while WTI slipped 4 per cent.