Stock markets in Europe are set to finish the session firmly higher.
There has been a huge shift in sentiment when compared with the losses that were posted in the eurozone on Friday. Equities in the US are driving higher, but stocks on this side of the Atlantic have been gaining ground since the morning. The health crisis in Europe is still serious but dealers have shrugged it off.
In London, it is a broad-based rally as banks, oil, house building, supermarket, hospitality, transport and travel stocks are all showing gains. Traders are clearly content to buy back into the market in light of the losses that were posted last week, but the bullish move seems excessive when you consider the uncertainty in relation to the UK-EU trades talks, the lack of a stimulus package in the US, and the health woes.
HSBC shares have jumped on the back of the news that Ping An Asset Management, a Chinese investment company, has increased its stake in the bank to 8% from 7.95%. At the back end of last week, HSBC shares dropped to their lowest level since 2009 on the back of a report that the Beijing administration could put the bank of its list of untrustworthy entities – such a move would hamper the company in regards to expanding its operation in mainland China. Also, it was reported that HSBC facilitated a series of suspicious transactions – traders are concerned about the bank’s compliance and anti-money laundering procedures. Ping An is the largest investor in the finance house, and the decision to increase its stake sends out a positive message.
Commerzbank announced that Manfred Knof will take over a CEO. Mr Knof is the head of retail banking at Deutsche Bank, so he knows the German banking system well. Over one year ago there was talk of a merger between Commerzbank and Deutsche Bank but that never went ahead. There have been questions hanging over the German banking system for some time now. The low interest rate environment continues to be a problem, and more recently the pandemic is likely to lead to provisions for bad debts for years to come, so it is likely that Mr Knof will have to do a lot of restructuring in order to try and whip the bank into shape.
Diageo shares hit their highest level since early August on the back of a bullish update. The drinks company confirmed it is trading ahead of expectations. Off-trade demand in Europe has been robust, and thanks to the reopening of economies, the trade division is on the rise. Recently there have been fears about the possibility of a second wave of Covid-19, so that poses a risk to the business. Diageo raised its outlook for the first half of 2021.
William Hill shares have witnessed a jump in volatility in the past two sessions. On Friday, the stock surged on the back of the news that it has been approached by Apollo Asset Management and Caesars Entertainment – who already struck a partnership with the company, whereby, the British group would be its exclusive sports betting operator. It was also announced that William Hill would run ESPN’s fantasy products. European gaming companies have been keen to gain exposure to the US ever since a number of states made sports betting legal. This morning it was announced that Caesars bid 272p for the stock, and keep in mind the share closed above 300p on Friday. It is worth nothing that William Hill shares ended the session on Thursday in the 220p region.
JPMorgan cut its price target for Rolls Royce from 80p to 65p. On Friday, the stock jumped on the report that Kuwait’s sovereign wealth fund was interested in acquiring a stake in the group. After the close of business, the struggling engineering group said it was considering all its options with respect to beefing up its balance sheet. It is likely that the longer it waits to pull the trigger on the £2.5 billion rights issue, the further the stock will slide.
US stocks are building on the gains that they racked up on Friday. The NASDAQ 100 is up over 0.9%, while the S&P 500 is up 1.3%. Lately, the tech sector has led the way so the fact that the NASDAQ 100 is under performing the broader index, could be a sign the wider market rally could fade a little.
President Trump has pushed back at allegations that he paid almost no tax on the run up to the presidency. No doubt his taxes will be raised by Joe Biden at the first presidential debate tomorrow.
Uber Technologies has won its legal battle to keep operating in London. A judge declared that the company was ‘fit and proper’ to operate in the UK’s capital city. Previously there had been concerns about the companies vetting procedures and that tied in with passenger safety concerns. Today, the judge ruled that the group overcame its previous operational issues.
Caesars Entertainment Corp shares are a touch higher on the back of its proposed acquisition of William Hill. The positive move suggests that investors are keen on the potential deal.
Bank of America issued a ‘buy rating’ for Virgin Galactic and that has sent up the stock over 20%.
The risk-on sentiment that is circulating today has prompted dealers to dump the US dollar. In recent weeks we have seen a jump in demand for the dollar whenever equities have been under pressure, so now we are seeing a reversal of that. On Friday, the US dollar index hit a two month high, which coincided with the fall in eurozone stocks. Today’s bearish move in the dollar has boosted EUR/USD and GBP/USD.
There were no major economic announcements from Europe or the US today. Christine Lagarde, the head of the European Central Bank, said that the stronger euro will weigh on inflation – which is likely to remain in negative territory in the months ahead. The central banker trotted out the old line that policy will be adjusted as required.
Trade talks between the UK and the EU will continue this week. A spokesperson for the Prime Minister said there are differences on what both sides want, but a deal is still possible.
Gold is up on the session thanks to the weakness in the US dollar. The yellow metal started off this week from a relatively low base because it dropped to a two month low last week – when the dollar pushed higher. While gold holds above $1,848, the wider positive trend should remain intact.
WTI and Brent crude are slightly higher today due to concerns about supply. Oil is likely to see volatility this week as there are worries about oil workers going on strike in Norway. In addition to that, clashes between Armenia and Azerbaijan might lift the oil market because the region is important with regards to oil infrastructure.