European stock markets sold off again as worries about the health crisis have become more entrenched.
Yesterday was a brutal session for equities as the jump in Covid-19 cases in Europe and the US, plus tougher restrictions, hammered traders’ confidence in the markets. Today, things started out on a relatively quiet note, especially for the FTSE 100, but the coronavirus fears resurfaced. US index future pushed lower in advance of the cash trading in New York and that weighed on sentiment on this side of the Atlantic.
HSBC shares are higher on the back of well-received third quarter numbers. Pre-tax profit tumbled by 21% to $4.3 billion, which easily topped the $2.8 billion that equity analysts were predicting. The bank set aside $785 million for bad debt provisions and that way below the $2 billion consensus estimate. In the nine month period, net interest margin came in at 1.35%, which was a fall from 1.59%. The depressed interest rate environment is hurting bank’s profitability from lending, and while the chatter of negative interest rates form the Bank of England (BoE) continues, HSBC’s lending margin is likely to be squeezed. The finance house said that it will exceed its $100 billion gross risk-weighted asset reduction target by the end of 2022. In a pleasant surprise, HSBC announced that it might pay a conservative dividend for 2020, which sends out a very positive message to the markets. It says a lot about the bank that it is thinking about making a pay-out but the BoE would have to lift their ban on dividends first. HSBC will continue down the cost cutting route as it intends to cut more than 30,000 jobs in the month ahead.
Whitbread swung to a first half statutory loss of £724.7 million, from a profit of £219.9 million last year. The news is hardly surprising seeing as the hotel industry has been hit extremely hard by the health crisis. Whitbread, is the owner of Premier Inn, and when the lockdowns were imposed at the start of the pandemic, total revenue tumbled by 99%.In the first six months of the financial year, total statutory revenue fell by 74% to £250.8 million. When economies re-opened, the firm saw an uptick in business. In August, UK occupancy rates were 51%, and that improved to 58% in September. Whitbread’s German business now has 21 hotels open, and that is a significant increase on two hotels that they had open at the start of the first-half. Since the UK government advised people to work from home where possible, and the introduction of localised restrictions, Whitbread has experienced a fall in business.
BP’s third quarter underlying replacement cost profits – a popular profitability metric in the oil industry- was $86 million. It was a big drop from the $2.25 billion profit posted one year ago, but it was a massive rebound from the $6.7 billion loss registered in the second quarter. A quarterly dividend of 5.25 cents was declared so that should keep shareholders sweet. BP is making progress with respect to making itself more nimble. Net debt is down $500 million to $40.4 billion, and it is tipped to fall in the fourth quarter when proceeds from asset sales are collected. It is making progress on its target of $2.5 billion in annual cash cost savings by the end of 2021. The disinvestment scheme is going well, and it aiming to deliver $25 billion in proceeds by 2025.
Stocks in the US are mixed as there is a certain amount of bargain hunting going on, in the wake of last night’s sizeable falls, but at the same time the pandemic is hanging over the mood too. The US presidential election is one week away and traders are less optimistic that a coronavirus relief package will be declared.
Advanced Micro Devices will acquire Xilinx for $35 billion. The transaction is expected to complete in late 2021 and it should help the combined group eat into Intel’s data centre market share. In the latest quarterly update, Intel’s data centre revenue disappointed in terms of analysts’ expectations.
Caterpillar shares are in the red even though their third quarter numbers beat forecasts. EPS was $1.34, which comfortably topped the $1.18 consensus estimate. Revenue dropped by 23% to $9.9 billion, slightly ahead of forecasts. Earnings in the three month period slumped by 54% as demand for machinery and services was weak, but keep in mind that in the second quarter, earnings dropped by 70%, so things are recovering. Caterpillar shares are down today, but last week they hit their highest level since January 2018, so it seems that traders had high hopes for today’s update.
The US dollar index is in the red following the bullish move that it experienced yesterday. In recent months, the greenback has typically gained ground when equities are under pressure, but that relationship doesn’t seem to be in play today.
EUR/USD and GBP/USD have been lifted by the dip in the dollar. It was a quiet day terms of economic announcements from Europe. The UK CBI distributive sales report for October came in at -23, which was the weakest update since June. Lately, certain parts of the UK have had to endure tougher restrictions, and it is clearly impacting the retail sector. The Spanish unemployment rate for the third quarter increased to 16.26%, from 15.55% in the second quarter. Spain has recently declared a state of emergency, so unemployment is likely to get worse in the short-to-medium term.
Gold is up on the session because of the move lower in the US dollar. Yesterday, the metal traded in a small range because the rally in the greenback offset the jump in demand for gold – which was driven by the sizeable fall in stocks. Today, the commodity is comfortably above the $1,900 mark, and while it holds above that level, the bullish move that has been in place since late September should continue.
WTI and Brent crude have clawed back some of yesterday’s larges losses, where they were hit hard by the fears surrounding the tougher restrictions and excess supply concerns from Libya. Adverse weather in the Gulf of Mexico has prompted oil companies to remove works from the area, so that that pushed up the oil market today.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.