It’s been another positive session for European stocks, as concerns about fallout from Evergrande continue to diminish, after this morning’s agreement on some of its domestic bond coupons. The company didn’t provide any details on what was agreed and there is still the not insignificant matter of its US dollar bond payments due tomorrow, which are said to be in the region of $83.5m in interest.
Despite this little wrinkle, markets appear to be working on the assumption that the problem has been contained, let’s hope they are right. This assumption is clearly manifesting itself in Asia-focused areas of the market with HSBC and Standard Chartered up near the top of the FTSE 100, along with Prudential, all three of which do the majority of their business in the region.
It’s also been a good day for gaming stocks with Flutter Entertainment up after confirming it has reached an agreement with the Commonwealth of Kentucky to the tune of $200m, over and above an original $100m, which was a legacy of its Stars Group acquisition. The original judgement was for $870m so this can be very much considered a win.
Sports betting provider and owner of Corals and Ladbrokes, Entain, saw its share price surge yesterday on reports that US sports betting business DraftKings was making a $20bn bid for the business. Today Entain added some additional colour to yesterday’s headlines, confirming that a bid of 2,800p had been made consisting of 630p in cash and the balance to be paid in shares, valuing the business at a colossal $22bn. The board hasn’t dismissed the offer and said a further announcement will be made, as and when appropriate.
The move by DraftKings is bold given Entain’s relationship with MGM Resorts and given that MGM made a bid earlier this year of $11bn. Entain certainly has a lot of assets, with a strong brand in the UK as well as its other 27 markets. MGM is unlikely to want to give up its designs on Entain, however it will have to decide whether it wants to even get close to the current offer which is double its own offer. That’s a lot of bid inflation in less than a year.
It was good news for leisure group Ten Entertainment today as it reported a 22.5% rise in sales since it reopened its bowling alleys in May. The company benefited from the stay-at-home trend reporting its best summer ever, and raised its full year guidance, helping to also boost the likes of Hollywood Bowl as well.
On the downside, B&Q owner Kingfisher has continued to underperform after yesterday’s disappointing market reaction to its latest numbers.
US markets have started the day on the front foot, although they started yesterday in similar fashion, before slipping back into the close.
Today's Fed meeting due shortly could well play a big part in whether these higher prices are sustained, and whether chair Jay Powell doesn't say anything at today's press conference that might derail the current optimistic mood.
FedEx shares have slipped back on the open after the company warned on profits, and lowered expectations for the year. The expectation that FedEx would be able to match its Q4 profits always looked to be a high bar given recent events, and its announcement earlier this week that it was raising prices. There had already been early indications that costs were rising in its previous set of numbers, which saw an increase of 23.4%. Yesterday’s Q1 numbers have borne out this fear, as profits slipped to $4.37c a share, although revenues came in above expectations at $22bn. The company also cut its full year outlook even as it predicted that revenue would surpass $90bn this year. A rise in costs of $800m from a year ago is the key pressure point with worker shortages, and having to pay staff extra for weekend shifts appears to be part and parcel of the pressure on margins. UPS shares have also slipped back.
Disney shares initially slipped back after CO Bob Chapek warned that this quarters subscriber numbers were likely to see a slowdown, due to a slowdown in some of its production for movies and TV content. Its markets in India were also expected to see lower numbers as a result of the expiry of introductory offers, while the Latin America rollout of its Star+ product was also experiencing problems. Theme parks however were still recovering well.
Facebook shares have also slid back after admitting that Apple’s ad changes are hitting its business in the current quarter. This admission initially sent the likes of Snap and Twitter lower, however they quickly bounced back. Uber is also higher after, building on yesterday’s gains after upgrading its expectations for returning a profit this fiscal year. MGM Resorts is also higher, on the back of the DraftKings bid for the UK’s Entain.
The US dollar has been broadly softer ahead of this evening's Fed statement, and Jerome Powell press conference, although some of this weakness may merely be as a consequence of the much better sentiment today, which is seeing capital rotate into riskier areas of the market. The pound is also underperforming largely due to concerns about the UK’s exposure to the current power crunch, and the wholesales failures being seen across the utility sector, although there is also the small matter of the Bank of England meeting tomorrow.
We’ve seen a broad-based rebound in commodity prices today, with the weaker US dollar and the more positive mood helping to boost sentiment. Platinum and palladium prices have rebounded sharply, while copper prices are looking perkier. Crude oil prices have also continued to move higher, as smaller OPEC producers struggle to increase output and US API inventories declined by a higher than expected 6.1m barrels last week.
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