European equity markets pulled back a small bit of the huge ground that they lost yesterday in the first few hours of trading.
The mood was a little cautious as traders got used to the idea of tougher restrictions in France and Germany – which will last for one month. It was reported this morning that the restrictions in France might last longer than the time set out. By the middle of the session, indices were showing modest losses. The European Central Bank (ECB) kept interest rates on hold, meeting forecasts. Christine Lagarde, the head of the ECB, said that the downside risks had increased and that softer economic activity in the fourth quarter was witnessed. When speaking about the possibility of further loosening the monetary policy, Lagarde said, there is ‘little doubt’ that the ECB will act in December. Traders took that as a cue to buy back into stocks. In recent years, the markets have become overly reliant on central bank intervention, and the remarks were music to the bulls’ ears. European stocks are set to finish higher on the day.
Lloyds shares are up in the session on the back of the well-received third quarter figures. Pre-tax profit was £1.04 billion, and that easily topped the £588 million forecast. The bank set aside £311 million for bad debt provisions, which was way below the £721 million consensus estimate – this has been common in the latest reporting season. Lloyds confirmed that mortgage approvals hit its highest level since 2008, and that tied in with the report from the Bank of England that UK mortgage approvals reached their highest level since 2007. Lloyds said that it now expects full year bad debt provisions to be at the lower end of the £4.5-£5.5 billion forecast, and that stuck out for traders as it seems that things are on the up for the bank, but in reality the full extent of the pandemic-related costs has yet to become clear, especially in light of the UK’s new tougher restrictions.
Royal Dutch Shell issued a pleasant surprise to its shareholders this morning by announcing that the quarterly dividend was lifted by 4% to 16.65 cents, and keep in mind the oil titan trimmed pay out in April – which was the first time it lowered its dividend since the 1940s. The raising of the dividend is symbolic as it suggests the company feels the worst is over with respect to the pandemic. Traders reacted positively to the dividend news but it comes at a time when the oil company is trying to pivot towards renewable energy. The net debt position was trimmed by 1.3% to 31.4%, so it seems strange that Shell is so quick to lift their pay-out. In the three month period, net profit was $955 million, and easily topped the $146 million forecast.
BT Group confirmed that business has been robust considering the pandemic. The company announced that first half adjusted earnings dropped by 5% to £3.72 billion, which was largely in line with forecasts. Revenue slipped by 8% to £10.5 billion. BT raised the lower end of its full year profit forecast to £7.3 billion, up from £7.2 billion, while the upper end of the forecast was left unchanged at £7.5 billion. Not many companies are making upward revisions to their forecasts, even if it is just the lower end of the range, so traders were quick to snap up the stock.
Standard Chartered revealed that third quarter pre-tax profit fell by 40% to $745 million, which easily exceeded the $568.8 million that analysts were anticipating. Like with other banks, its provision for bad debt undershot estimates. The bank set aside $353 million for bad debts and that was a great deal smaller than the $614 million estimate. Standard Chartered mentioned the possibility of paying a dividend again, but the Bank of England would have to lift their ban first. In light of the economic disruption caused by the health crisis, the finance house cautioned there will be ‘some delay’ in achieving its financial targets.
Foxtons Group plc, the London focused estate agent, announced that third quarter group revenue fell by 10% to £28.5 million. The stocks in in the red.
It has been a choppy session on Wall Street so far and the major US indices are showing modest gains. The pandemic is still a growing concern but for now it seems that traders are content to go bargain hunting in the wake of yesterday’s big declines. The advance reading of GDP showed that the economy grew by 33.1%, and that was a stark contrast to the 31.4% fall registered in the second quarter. The initial jobless claims reading fell from 846,000 to 771,000 and the continuing claims update came in at 7.75 million, down from 8.46 million. These figures are encouraging but they have some way to go yet before one could argue that the US is in for a V-shaped recovery.
Pinterest Inc shares have surged on the back of the solid third quarter numbers that were posted after the closing of trading last night. EPS was 13 cents, and that hammered the 3 cents that equity analysts were expecting. Revenue was $443 million, topping the $383.5 million estimates. Monthly active users were 442 million, and that was ahead of forecasts.
LVMH originally offered to buy Tiffany for $135 per share. The offer was made one year ago, but the proposed takeover turned sour amid the pandemic and the two companies were sharpening their legal knives as LVMH was looking to backtrack on the initial offer. Today, it was agreed that the deal will go ahead at the lower price of $131.5 per share, which seems like a relatively small discount on the first offer. Less than two weeks ago LVMH posted respectable third quarter numbers thanks to a strong performance in China and its leather and fashion department, so the company is in good shape to take over the high end jewelry group, even if uncertain economic times lay ahead.
The US dollar index is up again as there is a certain level of uncertainty still going the rounds today with respect to the health crisis. The greenback surged yesterday due to the risk off attitude of dealers and to a certain extent that feeling is still lingering. The US GDP reading was encouraging, so that works in the dollars favour too.
EUR/USD is in the red on the back of the upward move in the US dollar, and the suggestion that the ECB will carry out more monetary easing too. The single currency was already drifting lower before Christine Lagarde dropped a hint about the ECB taking action in two months time. Broadly speaking, the eurozone’s economic recovery was fading, so traders are wondering what will be the state of play when stricter restrictions are enforced.
GBP/USD is lower today because of the rally in the greenback. The Bank of England consumer credit report showed that people in the UK paid down £622 million in debt last month, and this could be attributed to fear for the state of the economy. UK mortgage lending surged from £3.03 billion to £4.8 billion. Mortgage approvals were 91,450 – the highest level in years.
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