Stock markets are largely showing gains on the back of the optimism surrounding the US stimulus package. 

Europe

The volatility in the pound because of the UK-EU trade talks caused some big swings in the FTSE 100. The sharp fall in oil has hit BP and Royal Dutch Shell – this is another factor as to why the British market is underperforming against some of its continental counterparts. Even though there have been some ups and downs, the mood in relation to the proposed US coronavirus relief package is positive. Earlier today, Nancy Pelosi, of the Democrats, said she was sceptical of the Republicans willingness to make a deal, but a short while ago her language was more hopeful, and that has lifted investor confidence over here.    

H&M posted well-received third quarter numbers. The pre-tax profit was SEK2.37 billion, which easily topped the SEK2 billion that equity analysts were expecting. Like with other retailers, it experienced a jump in e-commerce – online sales increased by 27%. As a way of embracing the changes in shopping habits, the company plans to close approximately 250 of its stores in 2021, and that would equate to 5% of all outlets. In the long-run this should benefit the company as the high streets are becoming less relevant, and they are costly too. 

Rolls Royce shares have dropped to a 17 year low on the back of the announcement that it plans to raise £3 billion to bolster its balance sheet. £2 billion will be raised from a rights issue, and an additional £1 billion will be raised from a bond issue. It has agreed to a £1 billion loan facility too. UK Export Finance has agreed to extend its guarantee of 80% of its existing £2 billion five year loan term. The proposed rights issue will be a 10-for-3 scheme and the rights price will be 32p, and it will need to be approved by shareholders at the AGM on 27 October. The engineering company – which supplies aircraft engines - has been struggling recently because of the huge disruption caused to the aviation sector. It worth noting the company was already having issues with the Trent -1000 engine before the health crisis. Rolls Royce mentioned the need for additional capital a few months ago, but it dragged its heels, and that seems to have weighed on the stock price recently. The group are keen to pursue opportunities in the areas of defence and power.  

DCC shares are in the red because Goldman Sachs cut its price target to 5,000p from 6,800p. 

Smith and Nephew group issued a trading statement and it expects third quarter underlying revenue to drop by 4%. The group has experienced stable monthly growth recently. The group confirmed that the three units has undergone a significant rebound in activity from the second quarter when underlying group revenue dropped by 29.3%.   

US

The major indices are showing modest gains on the back of hopes that policy makers will reach a compromise on the stimulus package. The economic data has helped too. The initial jobless claims report fell from 870,000 to 837,000 – the lowest reading since the pandemic. The continuing claims reading dropped from 12.74 million to 11.76 million, which was better than the 12.22 million that economists were expecting. Keep in mind that the ADP report yesterday was better-than-expected. The solid jobs data helps the economy and lifts market confidence but it might take some of the pressure off the Republicans with respect to making a deal with the Democrats when it comes to the coronavirus stimulus package. Tomorrow’s US non-farm payrolls report will be closely watched from a political point of view.       

Bed Bath & Beyond revealed much better than expected set of first quarter numbers. EPS was 50 cents, while equity analysts were anticipating a loss of 23 cents. Revenue dipped by 1% to $2.69 billion, which was slightly ahead of forecasts. Online revenue surged by 80% and same store sales performed well too as they grew by 6% and keep in mind the consensus estimate was for a decline of 2.1%.  

Pepsi Co announced respectable third quarter numbers. Revenue increased by 5.3% to $18.09 billion, topping the $17.23 forecast. EPS was $1.66 and that exceeded the $1.49 consensus estimate.  

FX

The CMC GBP Index saw a lot of volatility today as the back and forth of the UK-EU negotiations led to the pound having a large trading range. In the morning, sterling lost ground on the back of the news that the EU launched legal proceeding against the UK because of the passing of the internal markets bill. The move by Brussels wasn’t a shock, but nonetheless it hit the pound. In the middle of the session sterling had recouped its earlier losses, but it hit another speed bump when the EU announced that no progress had been made with respect to fisheries. 

EUR/USD is up on the day even though the US dollar index is basically flat.  Broadly speaking, the manufacturing PMI data from the eurozone countries were well-received. The readings from Spain, Italy, France and Germany were 50.8, 53.2, 51.2 and 56.4 respectively – all showed improvements on the month. It seems that the recovery in the bloc is getting a bit of a second wind, in light of mixed the August numbers.     

Commodities

Gold hit its highest level in over one week. In the past two sessions the US dollar has been largely flat and in turn that helped the metal – the inverse relationship between the two assets have been strong lately. The commodity has fallen a lot since hitting a record high in August but while it holds above $1,900, the broader uptrend should continue.

WTI and Brent crude oil are showing large losses because of oversupply worries and demand concerns. It has been a double whammy for oil as OPEC confirmed that output in September was up 160,000 barrels per day when compared with August. The rise in output was largely down to an increase in production from Libya and Iran. To make matters worse for the oil market, health concerns are persistent, so that has chipped away at traders’ perception of demand.   


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