Stock markets are set to finish the session in the red as traders book their profits from yesterday’s impressive gains.
Dealers haven’t forgotten that Moderna’s possible vaccine for Covid-19 has an effective rate of 94.5%, but for the time being they are happy to square up their positions. In the space of one week, there have been two very encouraging stories with respect to coronavirus drugs, so there is a growing feeling that the pharma sector is closing in on the virus, but there is always the possibility of setbacks.
For the most part, the moves that we are witnessing today are a reversal of what was seen yesterday. National Express is the biggest faller in the downbeat transport sector. JD Wetherspoon has lost the most ground out of the pub groups. IAG and easyJet are lower today after enjoying bullish moves yesterday. Ocado, the online grocery company, is bucking the wider negative trend as bargain hunters have swooped in today.
Homeserve shares are a little higher this afternoon thanks to the positive first half update. The company carries out emergency home repairs and improvements, and this industry has been one of the few areas to benefit from the pandemic. In a similar fashion, Kingfisher, the owner of B&Q and tootstation, saw an increase in sales in recent months as people have been keen to do work on their properties. Homeserve now expects full year profit to come in a little higher than expected. In the first six months of the year, revenue and adjusted pre-tax profit increased by 17.2% and 15.7% respectively. The interim dividend was lifted by 7% to 6.2p.
Banco De Sabadell confirmed it is in merger talks with BBVA. The story broke yesterday and Sabadell shares are higher for a second day in a row. BBVA are approximately 10 times larger in terms of market capitalisation, and the transaction would create the second largest bank in Spain. Yesterday it was also announced that BBVA were disposing of their US operation, so it would appear they are keen to focus on the Spanish market. In September, the merger of CaixaBank and Bankia was announced, and that created the largest bank in the country so that it is probably not a coincidence that BBVA and Sabadell are looking to merge. Interest rates are very low and that is putting pressure on bank’s lending margins, so expansion through a merger can be a way to consolidate your position. The latest news about a possible Covid-19 vaccine bodes well for the banking sector because if the situation is brought under control, that should take the pressure off bad debts.
EasyJet shares are in the red after the airline cut its capacity guidance again. In October, it lowered its first quarter capacity to 25%, and today it said that capacity will not be more than 20%. The update wasn’t exactly a shock given that several major European counties are in lockdown but it weighed on market confidence all the same. The low cost-airline swung from a profit of £427 million last year, to a pre-tax loss of £835 million – which was in the middle of its forecast range. Revenue was £3 billion, down over 50% on the year. On the bright side, easyJet now has a better handle of its cash outflow as fourth quarter cash burn rate was £651 million, down from £774 million in the third quarter. Since the Pfizer and BioNTech vaccine results were published just over one week ago, the stock is up roughly 40% so the vaccine news is arguably more important to easyJet than its own numbers.
Like their European equivalents, the major indices in the US are in the red as the bullish mood from yesterday has been replaced by a less upbeat attitude. The retail sales report for October points to a tapering off in consumer appetite. The headline reading showed that growth was 0.3% - a seven month low - and that missed the 0.5% that economists are expecting. In addition to that, September’s update was revised from 1.9% to 1.6%. If people are less content to go out and spend money that will probably hamper the recovery.
Tesla Motors Inc shares are driving higher on the back of the news that it will be included in the S&P 500 index next month. There has been chatter about this for a number of months but now it is official. The ascension into the well-respected index paints the company in a more positive light. In addition to that, tracker funds will need to buy Tesla’s stock in order to have the right portfolio to track the index.
Walmart posted solid third quarter numbers. Total revenue increased by 5.2% to $134.7 billion, which topped the $132.2 billion consensus estimate. EPS was $1.34 and that easily exceeded the $1.18 that equity analysts were expecting. US same store sales (SSS) and e-commerce sales grew by 6.4% and 79% respectively. The cheap retailer is firing on all cylinders as it put in a strong performance at stores and online.
Home Depot also delivered a strong set of third quarter figures. EPS was $3.18, beating the $3.06 forecast. Revenue rose by 23% to $33.54 billion, and that surpassed the $32.04 consensus estimate. SSS in the US rose by over 24% and the average purchase per customer increased by 10%. Home improvements and DIY activity surged amid the pandemic and it is impressive to see that Home Depot managed to see robust demand in recent months seeing as the $600 per week US unemployment benefit ended in late July. It is possible that the demand for home improvement items will dip as winter sets in.
Amazon announced plans to commence an online pharmacy service in the US and that has hurt CVS Care and Walgreens Boots Alliance as the traditional pharmacy groups are likely to come under pressure from the e-commerce titan.
GBP/USD is higher today on the back of optimism surrounding the UK-EU trade negotiations. Earlier today, it was accounted that both sides will be concentrating their efforts with respect to talks, and a deal could be achieved next week, but obviously there are no guarantees.
The CMC JPY index is up on the session as dealers are in risk-off mode. Once again, the Japanese yen is proving to be a popular safe haven play.
WTI and Brent crude are a little lower today as the very bullish run from yesterday has ran out of steam. The energy surged on the back of the vaccine news and the regional comprehensive economic partnership trade story helped the commodity too. It was reported that the meeting of OPEC+ members ended without a recommendation to alter output, so the two-day meeting that will begin at the end of this month will be in focus with respect to a possible change in production. Concerns about the health crisis have weighed on oil today.
Gold is broadly flat on the session despite the tumble in equities and the dip in US dollar – both of the situations have typically helped gold in the past. It seems that gold traders don’t know which way to turn as today’s range has been very small.