The fall in the pound is helping the FTSE 100 outperform versus its eurozone equivalents. 

Europe

Firms that have a large international presence, such as AstraZeneca, Reckitt Benckiser, Diageo, Ashtead, Unilever, and GlaxoSmithKline, are all benefitting from the drop in the pound.

Sterling is under pressure over fears the UK and the EU might not strike a deal, and that would result in business being conducted on WTO terms in January. Yesterday, Prime Minister Johnson said that if a free trade deal has not been agreed upon by 15 October, it would be time to walk away from the trade talks and peruse a basic WTO style trading relationship with the EU, which would commence in 2021. The fear of not achieving a deal as hit sterling, but equity markets are doing well. The DAX 30, the CAC 40 and even the FTSE 250 – which is a good barometer for the UK economy – are all showing solid gains.      

Associated British Foods shares briefly hit a six month high on the back of the fourth quarter numbers. The company impressed traders by announcing that it’s Primark and food businesses performed better than expected in the final three months of the year. The firm also cautioned that full year earnings per share will be significantly below that of one year ago, but dealers were expecting that given the closure of Primark – the fashion house has no online operation, so the lockdown was painful. All its Primark stores have been open since at least July. The food division continues to see strong demand, while the sugar business is anticipated to post an increase on last year’s profit.     

The media group, Future, announced that’s its full year results will be ahead of market expectations. The optimistic statement helped the stock price hit an all-time high today – something that not many FTSE 250 firms can boast. The firm is benefitting from cost synergies and it now expects to save £20 million next year, which would be an improvement on the £15 million in initially planned to save. Future said it continues to benefit from the transition to digit media.

FirstGroup is one of the best performs on the FTSE 250 on the back of a newspaper article that claimed its US business – FirstStudent and FirstTransit – could be in the crosshairs of private equity firms. The transport group has been hit hard by the pandemic, so spinning-off assets could be a way to help its cash position. The article said that investment groups such as Brookfield, Apollo Group, and KKR could be interested in the US businesses. 

Dechra Pharma shares hit a record high. Full year revenue increase by 6.8% to £515.1 million, and annual underlying operating profit increased by 0.4% to £128.3 million. The full year dividend was raised to 34.29p, a rise of 8.5%.

US

The New York Stock Exchange is closed as it is a public holiday.

FX

GBP/USD has come under pressure today as there has been tough talk from the UK in regards to the EU negotiations. Prime Minister Johnson said if a free trade deal hasn’t been reached with the EU by 15 October, the UK team will talk away from the talks and that should pave the way for WTO terms between the UK and the EU come 2021. The prospect of not securing an agreeable agreement has weighed on the pound in general. The US dollar is higher across the board, so that has hit sterling too.

EUR/USD is in the red on account of the positive move in the US dollar. The less than impressive German industrial orders report didn’t do the euro any favours. The reading for July showed a growth of 1.2%, and that was a big miss on the 4.7% that economists were expecting. The June update was revised up to 9.3% from 8.9%.  

The greenback has been in an uptrend since Tuesday, and the bullish move is gaining ground. In the past six weeks it has made several attempts to snap out of the wider negative trend but it failed on each occasion. A break above the August highs could be an early sign that the dollar index is going to undergo a rebound.     

Commodities

Gold has lost a little ground today because of the positive move in the dollar – the inverse relationship between the two markets has been a common theme in the past few months. Volatility in gold has been very low today as US traders are on holiday. In early August, gold hit an all-time high and in the past few weeks it has been caught in a range, and even when it has come under pressure, it has held above the 50-day moving average, which is now $1,906.      

WTI and Brent crude have fallen to two-month lows. Saudi Arabia cut the price of its oil shipments to Asia and the US. The move by the oil-rich nation suggests that demand is slipping. Last week, it was revealed that US gasoline demand dipped. Overnight, it was reported that China’s imports in August contracted by 2.1%. Economists were expecting growth of 0.1%. The July reading was -1.4%, so internal demand is falling, and that does not bode well for oil.


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