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FTSE 100 at 18-month highs, as airlines lifted by US and UK travel relaxations

Airlines take off as travel restrictions eased further

It’s been another strong session for European markets, with airlines getting a lift after the US announced that it would be reopening its borders to vaccinated visitors on 8 November, and the UK government announced that fully-vaccinated passengers from red-list countries can take a lateral flow test from 24 October, with decent gains for the likes of Lufthansa, Air-France KLM and IAG.

Europe

The FTSE 100 has managed to sustain the gains from yesterday, consolidating at 18-month highs, helped by strong performances across a number of key sectors, with energy, financials and basic resource stocks all seeing strong gains, not to mention the outperformance of companies like Rolls-Royce, which is up over 25% from its September lows.  The UK benchmark is also the one major market that hasn’t been able to recover its post pandemic highs so clearly has room to play catch up, and open up a move towards 7,400, towards the 2019 highs of 7,727.

Other decent performers today have been from those underperforming sectors mentioned earlier, with HSBC and Barclays getting a positive read across from this week’s US bank updates, while the rise in BP and Royal Dutch Shell’s share price speaks for itself with oil prices comfortably above $80 a barrel and natural gas prices at current levels.

It’s not been such good news for digital education provider Pearson, whose shares have tanked despite the latest 9-month trading update showing that the company was trading in line with expectations with group underlying revenue rising 10%, and guidance left unchanged for the full year.

Virtual learning saw sales growth rise 14%, with decent gains across the board with one exception. Higher education saw a drop of 7% driven by declines in US Higher Education Courseware. It is this that appears to have prompted today’s sharp drop in the share price to an 11-month low, over concerns that this drop could well continue through the rest of the year, and into fiscal 2022.

Rio Tinto has underperformed today after its Q3 production update showed that while output increased versus Q2, the numbers were still down significantly on a year ago, and that looking ahead, Q4 output was likely to be at the lower end of expectations. This is due to delays in completion of the new greenfield mine at Gudai-Darri and the Robe Valley project in Western Australia due to shortages of workers.     

US

US markets have got off to another strong start after US retail sales for September came in better than expected, rising 0.7%, against a forecast of -0.2%, while the August numbers were revised up to 0.9%. These better-than-forecasted numbers, not only pushed up US 10-year yields, but yields more generally across the board.

The US also announced it would be lifting the overseas travel ban on November 8th, allowing vaccinated visitors into the country, helping to generate a lift in airlines on both sides of the Atlantic, with some decent gains for American Airlines, Delta and United Airlines, along with the hotel chains of Marriott and Hyatt.

Goldman Sachs Q3 numbers followed in the footsteps of its peers earlier this week, and really saved the best to last with some stunning numbers.

The bank is on course to post a record year as Q3 revenue came in at $13.61bn, $2bn above expectations while profits rose to $14.93c a share, well above the consensus of $9.92c a share. There were beats across the board in all divisions with the trading division standing out, with a return of $5.61bn, while equities also outperformed with revenues of $3.1bn, well above expectations of $2.2bn.

Virgin Galactic shares have fallen sharply after the company pushed out the date for its first commercial flight into Q4 of next year, from Q3, slipping back to four-month lows, which seems a little bit of an overreaction given that we’re only talking about a modest delay.

FX

The US dollar has given back a fair proportion of its recent gains this week, after Wednesday's Fed minutes confirmed that the US central bank was on course to start tapering its bond buying program as soon as next month. In the space of this week, we hit a one year high, before sliding to a ten-day low, in a classic case of buy the expectation and sell the fact.

The Japanese yen has been the worst performer hit by a combination of rising energy prices and positive market sentiment.  

The pound has also benefited from the increased appetite for risk amongst traders, hitting its highest level against the euro since February 2020, and a 5 year high against the Japanese yen, as rising gilt yields increase its attractiveness, against the low and negative yielders.

Commodities

Bitcoin prices have risen above $60k on expectation that an ETF approval won’t be blocked by the SEC, as it continues to gain acceptance as a mainstream asset, with reports that it could start trading as soon as next week.

Brent crude prices have continued their exorable move higher, moving above $85 a barrel for the first time in three years, as demand for oil continues to increase in the face of spiralling natural gas and coal prices.

Copper prices have continued to move higher, and look set to retest the record highs that we saw back in May, with the best weekly gain since 2016, as inventories on the LME fall to their lowest levels since 1974.


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