Stocks are in the red due to health concerns. 

Europe

The worldwide death toll of the pandemic has topped 1 million and that headlined has been at the forefront of traders’ minds today. When you compare the major gains achieved yesterday with the relatively small losses registered today, it indicates that traders are not overly worried about the Covid-19 crisis.

The volatility in the pound has impacted some of the larger constituents in the FTSE 100. Sterling was higher earlier, but now it is in the red. Companies like British American Tobacco, Diageo, GlaxoSmithKline and AstraZeneca all earn a large portion of their revenue overseas so a move higher in sterling typically hurts their share price. HSBC is also a big constituent in the index and that is down today after the big rally it enjoyed yesterday. The fall in the oil market has weighed on Royal Dutch Shell and BP.

Ferguson shares hit a record high as the company resumed paying a dividend – something that not many companies are doing these days. The reinstatement of the dividend is a double win for the stock as not only does paying a dividend attract income investors, but it also projects a positive image. Full year revenue slipped by 0.9% to $21.82 billion and pre-tax profit was $1.26 billion, down from $1.32 billion last year. Annual ongoing underlying trading profit increased by $1.59 billion. The company is still assessing its demerger options with respect to Wolseley, but in light of the current climate, the group might be waiting a while.

B&M European Value Retail shares have set a new record high on the back of a bullish trading update. The discount retailer said that first half group revenue will increase by over 25%. The company now expects to open 40-45 stores in the UK this year, and keep in mind that many of the well-established retailers in the UK have been cutting back on their high street presence in recent years. The previous guidance was for group adjusted EBITDA of £250-£270 million, and now the company expects to tops that prediction. B&M has witnessed a rise in the average spending of clients.                     

Greggs shares are in the red as the company cautioned that the outlook is uncertain. The bakery chain confirmed that sales in September at its company-managed stores were 76.1% of last year’s level, while like-for-like sales in the 12 weeks until 26 September were up over 71%. Since early July, all the shops have been open and business is picking up. Greggs announced that it will be cutting back on employee costs, and that will entail reducing working hours in an effort to minimise the number of job losses. Trimming expenses is a sensible move as the company suffered greatly as a result of the lockdown – stores were closed for roughly three months – but traders have taken the cost cutting plans a sign of weakness. All its stores now operate digital sales and a click and collect service, and that should help it tap into the takeaway market.   

US

Like their European counterparts, US stocks have handed back some of yesterday’s gains. It has been a quiet day in terms of corporate earnings and volatility is likely to remain low in the session as the first presidential debate between Mr Trump and Mr Biden will take place after the market is closed. Opinion polls have pointed favourably to Joe Biden but it is hard to dislodge an incumbent. The allegations that Mr Trump paid almost zero taxes in the years ahead of election victory in 2016 is likely to be brought up by Mr Biden.

Speaking of politics, the Democrats lowered their request for a coronavirus stimulus package to $2.2 trillion. It is understood that Nancy Pelosi of the Democrats had a 50 minute conversation with US Treasury Secretary, Steven Mnuchin. The two will speak again tomorrow. The stimulus story will probably take a back seat to the debate.        

The Conference Board consumer confidence reading for September was 101.8, which was a big jump from the revised 86.3 registered in August.  

FX

The US dollar index is in the red again and that has given a lift to GBP/USD and EUR/USD. The greenback has seen a lot of volatility in September. At the start of the month it fell to a level last seen in April 2018, but then it rebounded and at the end of last week and it hit a two month high. The move in the dollar seems to be largely down to profit taking. The political debate between Mr Trump and Mr Biden could add volatility to the dollar.

The preliminary reading of German CPI for September dropped to -0.4% from –0.1%. Economists were expecting the level to hold steady at -0.1%. The fall in the inflation rate points to a decline in demand and that ties in with the latest services data from Germany. Yesterday, Christine Lagarde, the head of the European Central Bank (ECB) reiterated that inflation in the currency zone is likely to remain negative in the near term.

The Bank of England’s (BoE) consumer credit report for August was £300 million, which was nowhere near the £1.45 billion that economists were expecting. The July report was revised down to £1.05 billion from £1.2 billion. Mortgage lending jumped from £2.86 billion to £3.14 billion. Demand in the housing market continues to be strong but it would appear that demand in general is tapering off.  Andrew Bailey, the BoE chief, seems to dropping hints that negative rates might be introduced.   

Commodities

Gold hit a one week high as the weakness in the dollar has helped the asset. The moves in the greenback continue to be very influential when it comes to gold. The metal hit a two month low last week so it was coming from a relatively low base and the dip in the greenback encouraged traders to buy into the commodity. If the move higher continues it might target $1,900.   

Brent crude and WTI are in the red as the overall bearish sentiment because of the health crisis has dampened demand prospects. In August, oil imports in Japan fell by 26%, which highlights the impact of the pandemic. In light of the violence between Armenia and Azerbaijan, oil is likely to remain volatile because the region is important with respect to energy infrastructure.    


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