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Equities tumble on tougher restrictions, Walgreens shines

CMC Markets

European stock markets are set to finish deep in the red on account of the tighter restrictions because of the health crisis.

Europe

The rising number of new Covid-19 cases has alarmed governments, which has prompted them to introduce tighter localised restrictions. Dealers are in risk-off mode because they fear that economies will suffer in terms of economic activity. The eurozone’s economic recovery was already cooling before the recent spike in cases and the introduction of stricter restrictions. Earlier today, it was announced that tougher restrictions will apply to London as of the early hours of Saturday. On the UK market, hospitality, transport, travel, house building and commodity stocks are in the red.                  

AO World plc shares are bucking the wider negative trend. The stock hit an all-time high on the back of its bullish trading update. It is worth noting that not many London-listed shares have set record highs in recent months. The company is an online electrical retailer, and it anticipates that first half revenue will increase by 57%. AO was a major benefactor from the lockdowns as consumers were pushed towards online firms, and the group’s UK operation continues to see robust sales even though traditional competitors have returned to business. This seems to suggest that society has embraced e-commerce even more so than it did before the health emergency.

Ryanair’s followed it rivals, easyJet and Wizz Air by cutting capacity for winter to 40% from 60%. The low-cost airline plans to operate approximately 65% of its routes in winter, and it will suspend operations at three of its bases as a part of that plan. Fresh health concerns and the gloomy announcement has hit the entire travel sector. Air France, Lufthansa and TUI are in the red too.      

Marston’s, the pub chain, said that 2,150 jobs will be cut on account of the health crisis. The industry has been under pressure in 2020 as the lockdown had a brutal impact on business, and then when pubs were allowed to re-open in July, there were higher costs because of health and safety, and social distancing meant that customer numbers were down too. Marston’s confirmed that full year pub sales fell 30% to £821 million.

Dominos Pizza announced a quarterly update, and UK system sales jumped by 19.6%. The revenue for the UK and Ireland for the time period was £342.1 million, an 18% increase on the year. Dominos predicts that full year profit before tax will be between £93 million and £98 million, and that would be in line with forecasts. The stock is in the red today, but in late September it hit a 27 month high.

US

The negative sentiment in Europe has spilled over to the US, where the declines aren’t as big. Discussions between Democrats and Republicans over a stimulus package are still going on, it seems unlikely that a deal will be struck before the Presidential election in early November. The US jobless claims report was 898,000, and that was higher than the 825,000 economists were expecting. The New York manufacturing PMI reading for October was 10, which was a big dip form the 17 posted last month. The announcements point to a cooling of the recovery.     

Morgan Stanley posted respectable third quarter numbers. EPS was $1.66, which topped the $1.28 forecast. Group revenue jumped by 16% to $11.66 billion, and that easily exceeded the $10.66 billion that equity analysts were expecting. The finance house registered a 35% jump in revenue from fixed income trading. The equities teams saw a 14% increase in revenue, and investment banking revenue rose by 11%.

Walgreens Boots Alliance shares are a little higher on the back of the fourth quarter update. Revenue increased by 2.3% to $34.7 billion, topping forecasts. EPS was $1.02, while equity analysts were predicting 96 cents. The UK division – Boosts – posted a 29% fall in like for like revenue on account of the health crisis. The group issued a full year forecast, and it expects to see a small growth in EPS.       

FX

The US dollar index is up on the day because traders are in risk-off mode. The greenback has attracted safe haven flows in recent months and that is what we are seeing today. Shortly after the US jobless claims and New York manufacturing reports were posted, the dollar dipped but the overall desire by dealers to hold an asset that is deemed to be lower risk pushed up the currency.

EUR/USD is in the red due to the rally in the dollar. It would seem that demand in France is in decline as the final reading of the CPI rate for September was 0.0%, down from 0.2% in August. In light of the tighter restrictions in France, demand is likely to fall further.  

GBP/USD is lower on the day as uncertainty in relation to the UK-EU trade situation continues. Sterling pushed higher yesterday as the UK indicated it would not abruptly halt talks on 15 October if a trade deal wasn’t in place. It is the same old situation whereby, both sides claim they want to reach an agreement, but no major compromises have been made so far. Until some clarity is given on the situation, sterling is unlikely to rally.    

Commodities

Gold is under pressure due to the upward move in the US dollar – the inverse relationship between the two assets is working against the metal today. At the start of the week, gold hit its highest level in over two weeks, and it has been drifting lower since. Today’s downward move in gold is relatively small when compared with the positive move in the greenback. Should the bearish move continue, it might retest the $1,848 region. 

WTI and Brent crude have been hit hard by the overall bearish sentiment in the markets because of the fears surrounding tougher restrictions. Oil is sensitive to the perceptions about global demand and fresh health concerns and stricter restrictions have weighed on oil. The energy market saw a jump in volatility on the back of the Energy Information Administration report which showed that US oil inventories fell by 3.8 million barrels, and the consensus estimate was for a fall of 2.83 million barrels.     


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