News

FTSE 100 underperforms, Wall Street rises, oil falls

CMC Markets

European stock markets are largely showing modest gains. 

Europe

The bullish run seen in Chinese stocks overnight has influenced sentiment in this part of the world. There hasn’t been much in the way of news to drive sentiment but dealers are still a little optimistic in relation to US politicians brokering a coronavirus relief package. On Friday, President Trump announced that talks were progressing and that helped US indices hit a five week high. Over the weekend, it became clear that differences still exist in areas such as healthcare and the paycheck protection program. Even though policymakers are still negotiating, the bulls are taking some comfort from the fact the talks haven’t ground to a halt.  The FTSE 100 is underperforming because of the fall in oil and mining stocks. BP, Royal Dutch Shell, Rio Tinto and Glencore are offside,   

XP Power hit a fresh all-time high on the back of its third quarter update. The company posted a 29% increase in orders for the nine month period. The third quarter was mixed as the growth rate of new orders was only 1%, but in terms of revenue it jumped by 28%. The company announced a third quarter dividend of 20p, which was a slight increase on the 18p dividend that was declared in the second quarter. 

UK banks are largely lower as the Bank of England (BoE) might pursue a policy of negative interest rates. It is understood the BoE has instructed British banks to be ready for sub-zero-rates, but that doesn’t necessarily mean that the agenda will be implemented, but it is prudent to be prepared. The logic behind negative rates is that people will be encouraged to borrow more, and in turn spend more, but the base rate has been barely above zero since the pandemic set in, and that hasn’t sparked a jump in lending. If anything, because of the health crisis people in the UK have been largely paying down debt in recent months. Banks are under pressure because of the pandemic as the lower interest rate environment and the prospect of a jump in bad debts in the quarters ahead is hanging over the sector. Should the BoE go down the route of negative rates that is likely to put more pressure on the already struggling industry.

Aveva Group issued an optimistic update as it expects first half revenue to be £333 million, and it kept its full year guidance unchanged. The order book for the rest of the financial year remains strong. The stock is in the red today even though there was nothing particularly negative about the update, but the share price has been sliding since it hit a record high in late August. 

Alex Cruz has stepped down as CEO of British Airways. Mr Cruz has been replaced by Sean Doyle, who is the CEO of Aer Lingus. British Airways and Aer Lingus are both a part of the International Consolidated Airlines Group.

Rolls-Royce shares were up for a sixth day in a row, but now they are in the red. At the start of the month, the stock dropped to a level last seen in 2003, but it has enjoyed a massive rebound since then. The group recently revealed plans to raise a total of £3 billion from equity and debt issues, and an additional £2 billion from credit facilities, so it seems that the company should be fine with respect to funding in the short-to-medium term. It is possible the bearish move in the past hour has been driven by profit taking.

Hollywood Bowl and Restaurant Group shares are under pressure on account of the health crisis, fears of localised lockdowns and tighter restrictions.  

HSBC lifted its price target for SSE to 1,510p from 1,470p.

US

It is a relatively quiet session on Wall Street as it is Columbus Day. The stock market is open but the bond market remains closed. Equities are showing decent gains are traders are still hopeful for a Covid-19 relief package. The Dow Jones is above 28,800 and the NASDAQ 100 is north of 12,000 – their highest levels since 3 September.

There is likely to be an increase in volatility tomorrow as the latest round of the reporting season will kick-off and JPMorgan Chase and Citigroup inc will post their third quarter numbers. Dealers will be keeping an eye on the trading revenues and bad debt provisions.

Citigroup lifted its rating on PepsiCo from neutral to buy, and the bank raised its price target to $169.

Twitter received a nice boost from Deutsche Bank, as it upgraded the stock to buy from hold, and the new price target is $56, up from $36. Twitter shares hit a five year high.    

FX

The US dollar index is largely flat on the session after enduring a relatively large fall on Friday, where it fell to its lowest mark in nearly three weeks. Lately, the greenback has attracted funds when stocks have been in decline and the opposite was the case last week when risk-on sentiment dominated. The broadly positive move in European and US stocks has influenced the dollar today. There has been an absence of major economic indicators, and that has been a factor in the low volatility seen in the currency market.

The UK Prime Minister, Boris Johnson, said that the British negotiating team will walk away from the talks if a deal has not agreed upon with the EU by 15 October. It is not looking likely that a deal will put in place by then. Sterling is higher as it looks like the UK won’t be going into a full on lockdown in the near term

Commodities

Gold has been hit by profit taking as the asset hit its highest level in over two weeks on Friday. Today’s trading range has been small as volatility across the board has been low. In late September, the asset dropped to a two month low, but it has been pushing higher since and while it remains above $1,900, the recent positive trend should continue.

Last week, the oil market was impacted by concerns that oil supply would be squeezed, and that lifted the price, but now WTI and Brent crude are in the red as the supply woes have eased. Production in the Gulf of Mexico has begun again in the wake of the hurricane. Oil Workers in Norway have returned to work as the strike dispute was settled at the back end of last week. To make matters worse for the oil market, output in Libya is set to rise by over 350,000 barrels per day as production at the Sharara oilfield resumed.         


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.