News

Stocks rebound, Nio accelerates

CMC Markets

European stocks are set to finish firmly higher. 

Europe

Last week, the major equity benchmarks fell to multi-month lows on the back of the news that continental Europe is set for tighter restrictions – namely France and Germany. Over the weekend, it was revealed that England will enter a one month lockdown, starting this week. The health crisis is still a serious issue, and there are concerns that Europe as a whole will economically suffer, but dealers are clearly keen to buy back into the market for now. Financial markets don’t move in straight lines, is an old adage, and it seems that today’s positive move could just be a technical bounce because from a fundamentals point of view, the UK and the eurozone economies are bracing themselves for a tough few weeks ahead.    

Ocado Group shares jumped on the back of the company’s bullish outlook. It now expects full year EBITDA to exceed £60 million, and that is considerably higher than the previous guidance of more than £40 million. The company confirmed that it continues to see high demand as more and more consumers switch to online shopping. The news over the weekend that England will go into a one month lockdown should benefit the company, as it has already benefitted greatly from the pivot to e-commerce. From an operational point of view, the company is expanding as it announced the acquisition of Kindred Systems and Haddington Dynamics for $262 million and $25 million respectively, once again the fact they are going down the expansion route suggests they are optimistic. In September, Ocado commenced its joint venture with Marks and Spencer (M&S) and a few weeks into the new relationship, the online grocer said the M&S products were very popular, and the high street titan will reveal its first half revenue figures on Wednesday.

Associated British Foods announced that all its Primark stores in a raft of European countries are closed, and when the stores in England are closed from 5 November, that will equate to 57% of its total selling space being temporarily closed. The group announced that the store closures will cause the company to incur a £375 million hit. Primark is a very popular clothing brand as the items are cheap, but the pandemic has highlighted a weakness in the business model – it doesn’t have an online operation, so the group is going to remain very sensitive to the pandemic.

Well known high street retailers such as Frasers Group, JD Sports, Superdry and Ted Baker, are all suffering today on the back of the news about the lockdown set for England.    

Ryanair-holdings-PLC-GB revealed a first half loss of €197 million, which was better than €244 million loss that the company previously predicted. Keep in mind, the Irish airline posted a first half pre-tax profit of €1.25 billion last year, so it goes to show how much pain the pandemic has caused. In the six month period, total operating revenue slumped by 78% to €1.176 billion. Ryanair plans to fly roughly 38 million passengers in the year end to March, but that forecast has the possibility of being revised down. The loss in the second half is expected to be greater than that registered in the first half. As bleak as things look for the sector, Ryanair has a cash balance of €4.5 billion, so it is well positioned to ride out the uncertainty in the industry.

US

Stocks are pushing higher this afternoon. Equities are pulling back some of the ground that they lost last week. The positive move might be as a result of dealers squaring up their books ahead of tomorrow’s all important US presidential election. The US manufacturing sector is in rude health as the manufacturing PMI reading ticked to 53.4, while the ISM manufacturing update jumped from 55.4 to 59.3 in October – the highest in over two years. It in encouraging to see that the US economy is making up for the lost ground it incurred earlier this year. 

Nio Inc, the electric vehicle manufacturer, delivered 5,055 vehicles in October, up 100% on the year. On a year-to-date basis, the company delivered 31,430 vehicles, and that equates to an increase of 111%.  The stock surged to a record high on the back of the figures.

Estee Lauder shares have also hit a new all-time high on the back of their results. The first quarter EPS was $1.44, which easily topped the 90 cents consensus estimate. Revenue for the quarter was $3.56 billion, which was ahead of the $3.49 billion estimate. The dividend was upped by 10% to 53 cents – which makes the stock more attractive to investors seeking an income, and it sends out a positive message too.

FX

GBP/USD is a touch lower today due to the concerns that the one month lockdown that England will undergo will damage the UK economy. This morning the final reading of the UK’s manufacturing PMI report was posted and it cooled from 54.1 in September to 53.7 in October, but it marginally topped the forecast of 53.3. The announcement of the much tighter restrictions, comes at a time when the UK’s economic recovery seems to be fading. On the bright side, there continues to be a sense of hope that the UK and the EU will strike a trade deal in the near-term.  

EUR/USD has dropped to a five week low because the dollar continues to move higher. The CMC EUR index is largely unchanged, so that suggests that the move in EUR/USD is largely to do with the greenback. The latest manufacturing data from the major eurozone economies was well-received as they all showed growth on the month, and topped forecasts. Germany’s manufacturing PMI report was the best of the bunch as the reading was 58.2.  

Commodities

WTI and Brent crude fell to their lowest levels since May on the back of demand fears. The energies have since turned around on the back of the news that Russia is open to the idea of delaying the planned tapering of the output cut – the country seems to be content to maintain the current levels of production rather than effectively increase its supply.

Gold is a little higher this afternoon even though stocks are driving higher and the US dollar is marginally up on the day.  The yellow metal typically dips when the US dollar edges up, and same goes for when traders are snapping up stocks – when they are in risk-on mode.    


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