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Trump, Biden underwhelm, 9,000 job losses at Shell, Palantir in focus

CMC Markets

If last night’s presidential debate was supposed to inform and educate, all it did was merely confirm the credibility deficit in US politics, as President Trump, and Democrat nominee Joe Biden engaged in what can only be described as a fact-free name-calling contest.

Financial markets appear to have taken their cues from that, shrugging off some better-than-expected Chinese PMI data, which showed improvement in both manufacturing and services in September. The Chinese numbers are certainly encouraging, and bar another significant wave of infections, there is evidence that the Chinese economy is slowly getting up off the mat after a sluggish few months.

European markets have opened lower this morning, and while attention is focused on last night’s events in the US, the real concern continues to be around the increasing probability that second wave concerns will curtail economic activity into year end.

On the companies front, the increasing drive towards renewables has seen Royal Dutch Shell take further steps to try and future proof its business away from fossil fuels. This morning the oil major announced it would be cutting up to 9,000 jobs by the end of 2022, as it looks to cut back on refining capacity, in the face of declining margins and lower demand. The company has said it is looking to make annual cost savings of between $2bn and $2.5bn as it looks to streamline the business, while warning that it will be taking between $1bn and $1.5bn in impairment charges in Q3

While unpleasant, changes such as these have been a long time coming for the oil and gas majors and it is good to see the likes of Shell, as well as BP taking steps to deal with these significant changes to the global energy mix. Now they need to go the extra mile and invest a greater percentage of their annual capex in the renewables side of their business, and steal a march on their US counterparts who appear to be asleep at the wheel.

William Hill shares are unmoved by the confirmation that Caesars will pay 272p per share for the business, however there is increasing concern that while the board have accepted the bid from Caesars the value of the business is entirely predicated on the future growth expectations of the US business. With Caesars in the driving seat due to the recent deal with ESPN, the risk is the underperforming UK business will slowly be wound down, or spun off over concerns around tighter regulation.

Catering company Compass Group shares have slipped sharply after announcing Q4 revenue fell by 36%, while full year revenue declined of 19%. The re-opening of schools should help the business in the short term, however the company’s sports and leisure business remained largely closed.

The share price reaction to Boohoo’s latest H1 numbers has been somewhat muted. There had been an expectation that the fallout from the Leicester factory revelations might see some damage to its sales numbers for Q2. These appear to have been misplaced, despite the furore. As with most things while the noise around the reports of working conditions was loud, price always tends to be a determining factor when push comes to shove. Revenues came in at £816.5m, a rise of 45%, in line with the increase seen in Q1, while profits before tax came in at £68.1m, a rise of 51%. In terms of the outlook, management were cautious, though we did see an increase in revenue guidance for the full year from 25%, to 28% to 32%. This is still quite a step down from the increase seen in the first half of this year, even if it is a modest upgrade.

The pound is slightly lower despite a modest upward adjustment to the final reading of UK Q2 GDP which came in at -19.8% from -20.4%.

US markets look set to open lower later today, as the fractious nature of last night’s so-called debate raises questions as to the outcome of next month’s election, as well as the prospect of an imminent stimulus deal.

Last night’s reports that Walt Disney will be cutting up to 28,000 jobs in its theme park operation speaks to the challenges facing the US economy in the face of second wave concerns and a concerted slowdown heading into 2021.

General Motors shares are also likely to be in focus after the company extended talks with Nikola in the aftermath of the recent revelations against the company’s founder Trevor Milton.

It’s also set to be the first day of trading for Palantir Technologies, a US software company which specialises in big data analytics, with the US government being one of its biggest clients with $1.5bn worth of contracts, particularly in respect of defence, and counter terrorism through its service Palantir Gotham. The company has yet to make a profit, like most recent IPO’s or direct listings so it’s not unique in that, but that hasn’t stopped markets assigning it a valuation of $22bn.

We also have the ADP employment report for September, which is expected to show 649,000 new jobs added. In August the numbers fell short at 428,000, and as such could do so again. Economic uncertainty has increased in the last few weeks despite a rise in US consumer confidence, and while today’s numbers could be a leading indicator for Friday’s non-farm payrolls report, there has been little correlation in recent months. The final US Q2 GDP numbers are expected to be confirmed at -31.7% annualised, with personal consumption the main drag at -34.1%


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