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FTSE 100 slips back, on weaker miners and BP

BP Oil Storage

European markets have had an altogether more mixed tone today, with a string of disappointing earnings numbers weighing on sentiment, and weighing predominantly on the FTSE 100, while the DAX and CAC 40 have moved higher. 

Europe

While positive numbers are generally greeted with equanimity, misses or downgrades tend to get brutally punished, as Flutter Entertainment and Standard Chartered have found out to their cost today.

Flutter Entertainment shares have dropped sharply, after warning that profits outside of its US operations were likely to be lower than expected, due to a regulatory change in the Netherlands and some recent unfavourable bets that saw big wins for punters. The regulatory changes it is estimated are likely to impact EBITDA by £10m in 2021 and £40m in 2022, assuming a resumption of operations in Q3 2022. CEO Peter Jackson also pointed to Liverpool’s 5-0 thrashing of Manchester United as one such event that weighed on its numbers, which is a shame when you consider how much joy it brought to everyone else!

Total revenues in Q3 were still up by 12% year on year, with sports revenue accounting for the bulk of that uplift.

Standard Chartered share price has also been absolutely rinsed today, after the bank warned that full year income was likely to be similar to last year’s numbers, despite beating expectations on Q3 profits in their numbers released today. Today’s disappointing share price reaction would appear to be a consequence of the bank saying that its hoped-for return to 5%-7% revenue growth would have to wait until next year.

BP shares are also lower after an underwhelming set of Q3 numbers. The headline numbers were ok on the face of it, with underlying replacement cost profit rising to $3.3bn, up from $2.8bn in Q2. Look a little bit closer though, and the profits number attributed to shareholders has seen the business slide to a net loss of $2.54bn.

This reported loss is down to the value of accounting effects of hedges on forward gas prices which are underwater to the tune of $6.1bn, and which are expected to partially unwind as prices fall back and gas cargoes are delivered. On the plus side the company did announce another buyback, this time of $1.25bn, with more to come in subsequent quarters, however that hasn’t been enough to stop the shares sliding back.

Iron ore prices at one-year lows are also hammering the mining sector, as concerns rise about Chinese demand have sent prices plummeting, with the likes of Anglo American, Glencore and Antofagasta all lower.

On the upside AstraZeneca is amongst the best performers after it was announced that Vietnam’s VNVC signed a new contract to buy 25m new doses of its Oxford vaccine.

US

After another positive session yesterday, US markets have opened modestly higher, as attention turns to tomorrow’s Federal Reserve rate decision, with the S&P 500 once again setting another record high. 

On the companies front, Tesla shares have slipped back after CEO Elon Musk indicated that the Hertz deal was by no means a slam dunk. Musk said no deal had yet been signed and the given the already strong demand for its vehicles the effects on the company’s economics was zero, which is not really what you want to hear as a shareholder. Then again when your market cap is well above $1trn, what’s a few lost billion in market cap between friends. Hertz, on the other hand has said it that deliveries of said Tesla’s have currently started. Confused? You’re not the only one!

Pfizer shares are slightly higher after the pharma giant reported Q3 revenue and profits above expectations, as well as raising its 2021 outlook. Q3 revenue rose to $24.09bn, with over half of that coming from the vaccine, $12.98bn. The company said it now sees Covid-19 vaccine full year revenue of $36bn, up from $33.5bn. It also adjusted profits up to between $4.13c and $4.18c a share.

Novavax is also higher on optimism that its vaccine will soon receive regulatory approval, with potential deals worth over $6bn in the offing once it is signed off.

FX

The Australian dollar is the worst performer today after the RBA left rates unchanged, as well as pushing back on market expectations of a much earlier rate rise. While the central bank did scrap its April 2024 ,0.1% government bond yield target it was a little more dovish than markets had perhaps expected.

This has seen the Australian dollar come under pressure, even as short-term yields remained where they were. This would suggest that while FX markets have adjusted to the more modest change in tone, bond markets aren’t buying it, even as RBA governor Philip Lowe admitted that a rate rise could come in 2023. We could also be seeing some weakness in the Aussie dollar because of the weakness in iron ore prices and weaker demand out of China.

The euro has managed to hold up well after the latest manufacturing PMIs came in slightly better than expected, with Italy particularly strong, although it was very apparent that supply chain disruptions were causing significant disruptions to output, with new orders also starting to show signs of weakness below the surface.

The US dollar is broadly firmer ahead of the start of today’s Fed meeting.

Commodities

Crude oil prices appear to be treading water for now, just below their recent peaks, on rising uncertainty about the demand outlook, ahead of this weeks OPEC+ meeting. Output is set to increase by another 400,000 barrels a day this month, however there is some evidence that some of the smaller producers are struggling to increase their output to the levels required.

Metals prices are broadly weaker, weighed down by a slightly firmer US dollar, with silver, and platinum prices under the most pressure, while gold has continued to struggle anywhere above the $1,800 an ounce level.


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