News

FTSE 100 underperforms, sterling rises, Aston Martin speeds up

The FTSE 100 is firmly in the red heading into the close as mining, financial, energy, healthcare as well as consumer stocks are lower. 

Europe

It is a broad based sell-off as several industries are suffering. The rally in the pound has hit the firms that draw a large portion of their income from overseas, while an investigation surrounding Glencore has hurt the mining sector.

The rest of Europe is mixed as traders don’t know which way to look in relation to the US-China trade story. Some traders are optimistic that some sort of a phase one trade deal will be sorted out within two weeks, while others are still fearful Mr Trump could talk about pushing back any trade deal until the 2020 presidential election is over – like he did earlier this week. 

Given the subdued state of the retail sector, not many firms are releasing positive updates, but Dunelm are bucking the trend as today the group announced full-year pre-tax profit to be above previous expectations. The group confirmed it has successfully transitioned all of its customers to the new digital platform – the firm’s push into e-commerce has ensured it is has stayed relevant. Dunelm also said that costs are under control, and that margins have been helped through sourcing improvements.

There is talk that Kering and Moncler are in merger talks. The share price of the respective companies are higher on the speculation.  The luxury retail sector has been in play recently as LVMH have agreed to buy Tiffany, so it is possible that deal triggered the talk about Kering and Moncler. The global economy is slowing down, hence why some pockets of the retail sector are under strain, but high-end brands tend to fare better as high net worth clients typically weather an economic slowdown better than mid-income earners.

Sticking with the luxury sector, Aston Martin shares surged on the back of reports that Lawrence Stroll, owner of Racing Point, is preparing to launch a takeover bid. The high-end car manufacturer listed on the London Stock Exchange over one year ago, but the stock has been basically in a bearish trend since then. The major drop in value has clearly made the group vulnerable to a takeover bid.     

Glencore confirmed they are under investigation from the Serious Fraud Office over allegations of bribery. While the case is hanging over the company, traders are likely to steer clear of the stock.

US

The major indices are showing small losses amid varied stories from the trade saga, and the mixed economic data is a factor too. The jobless claims rate dropped to 203,000 from 213,000, while the international trade deficit dropped to $47.2 billion from $51.1 billion – this could be a sign Trump’s tariff tactics are working. Factory orders increased by 0.3% in October, which was a bounce back from the 0.6% decline endured in September.

Dollar General had a solid quarterly performance. EPS came in at $1.42, topping the $1.38 forecast. Net sales increased by 8.9% to $6.99 billion, narrowly exceeding the consensus estimate. Same store sales jumped by 4.6% - its highest level in nearly five years, the group upped its full-year outlook too. Savvier consumers are hunting out bargains, hence why Dollar General are offering a wider range of products as well as opening new stores. The middle of the retail market is feeling the pinch the most as online sales erode their margins, while bargain basement stores are Dollar General are proving popular.

Kroger issued a mixed third-quarter update. EPS was 47 cents, while traders were expecting 49 cents. Revenue for the period came in at $28 billion, just shy of the $28.2 billion that traders were predicting. On the bright side, same store sales excluding fuel increased by 2.5%, which topped the 2.3% forecast. The company is making a big effort to ramp up online sales, which increased by 21%, but keep in mind, it grew by 31% in the previous quarter.

Tiffany posted poor numbers but the share price reaction has been muted on account of the group being taken over by LVMH. EPS in the three month period was 65, and that is a big drop from the 77 cents posted in the same timeframe last year. Net sales were broadly flat, and were just shy of analysts’ forecasts. The Hong Kong division had a dreadful performance as sales dropped by 49%. The company also cited a decline in spending by wealthy tourists in the US too. LVHM have consistently performed well despite the slight headwinds in the luxury sector, so it will be up to their management to make Tiffany sparkle again.     

FX

GBP/USD is higher as the Conservative party, who are pro-business, continue to lead in the opinion polls. We are one week out from the election as traders are pricing in a Tory win. Should Boris Johnson secure a majority, it should mean the Brexit deal will get approved too as all the Conservative candidates running in the election have pledged to support his deal.

EUR/USD has been helped along by the dip in the US dollar. The eurozone revealed mixed data today. In the third-quarter, the currency bloc grew by 1.2%, meeting forecasts, but retail sales slipped by 0.6%. The dollar’s move took precedence today though.

Commodities

WTI and Brent crude are showing gains as Russia recommended that OPEC and its allies cut production by 500,000 barrels per day in the first-quarter of 2020. This week there has been talk of production cuts, as Iraq have been pressing for lower output. The Saudi’s don’t seem that keen on the cuts, so some dealers might hold fire until everything is official.

The slip in the US dollar combined with the mild uncertainty in global equities has given gold a lift.  The commodity has traditionally been helped by a weaker greenback as well as a risk-off strategy by traders, so it is a double win for gold. The metal has been largely moving higher since the end of last month, and should it continue it might target $1,500. 

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