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News

Miners help FTSE, sterling shines on UK-EU deal hopes

A rally in mining stocks has helped the FTSE 100 outstrip the major indices in the eurozone. 

Europe

Rio Tinto, Anglo American, Glencore and BHP Group are adding a sizeable number of points to the index. Rolls-Royce is one of the biggest percentage gainers on the market on the back of a proposal to consolidate work at certain sites. The civil aerospace sector has been hammered on account of the pandemic but the group wants to divert talent towards the defence unit. The rally in the FTSE is all the more impressive because of the move higher in the pound – which typically dents the index. Continental equity markets are underperforming as the vaccine selection process is relatively slow on account of how the EU handles the authorisation process.      

After the close of business yesterday Morrisons announced that it will waive the business rates relief in full. Yesterday morning, Tesco declared there were in a strong financial position and that they would be repaying the business rates relief. Today it was announced that Sainsbury’s would waive their business rates relief too. It seems that Tesco set the trend for the supermarket sector, which saw a jump in demand for items but at the same time health and safety costs rose too.

Morrisons Covid-19 related costs are expected to be around £270 million, while the previous estimate was £230 million. The waiving of the business rates means that it will pay £274 million A special dividend of 4p will be paid to shareholders and that is connected to the deferred dividend amid the pandemic. It has no plans for a special dividend in the next financial year.

Today Sainsbury’s said it will forgo roughly £410 million in business rates, and it anticipates that underlying profit before tax (UPBT) will be at least £270 million for the financial year to March 2021. The company projects that UPBT for the financial year to March 2022 will exceed the £586 million posted this year. In addition to that, the company expects to generate average retail free cash of £500 million per year for the three years to March 2025. Sainsbury’s wants to make it clear that their business is in good shape and therefore it would look bad from an image point of view if they didn’t waive the rates relief, especially seeing as so many taxpayers are struggling on account of the pandemic. 

The deadline for Toscafund to make a bid for TalkTalk has been pushed back again to no later than 17 December. The 97p per share values the company at £1.12 billion. Keep in mind the telecoms company knocked back a 135p per share offer from the investment group in July as they felt it undervalued the firm. 

Paddypower owner, Flutter Entertainment, announced that it was upping its stake in FanDuel to 95% as it has agreed to buy Fastball’s 37.2% stake in the business. The acquisition will cost Flutter $4.18 billion and that will be partially funded by at £1.1 billion equity raising plan. European gaming groups have been keen to expand in the US ever since a number of states have de-regulated the gaming rules and Flutter are clearly keen to expand in that market. Stricter rules in well established markets like the UK are also a factor in the desire to grow in the US.  

Unilever shares are a little lower this today after JPMorgan cut its price target from 4,900p to 4,630p.           

US

The S&P 500 has set yet another record high as the same old hopes about vaccines and a stimulus package are assisting sentiment. Today’s job data was well received and it bodes well for tomorrow’s US non-farm payrolls report. The jobless claims metric fell from 787,000 to 712,000 undershooting the 775,000 consensus estimate. There was a slight cooling in the services sector as the ISM non-manufacturing reading dipped to 55.9 from 56.8 in October. Certain parts of the country had restrictions introduced last month so the slide in activity isn’t a shock.    

Snowflake Inc, the data warehousing company, posted its third quarter numbers last night. It was the first quarterly update since the company listed on the stock market in September. The update was a little mixed as the loss per share was $1.01, and that was an improvement on the -$1.92 posted last year. On an annual basis, revenue surged by 119% to $159.6 million and that was a slight dip in the growth rate seeing as the previous quarter registered 121% growth. Gross margins slipped from 59.6% to 58.2%. Looking ahead to the fourth quarter, the group anticipates revenue to be $162-$167 million, and that would equate to 93% growth, so that adds to the view the company is coming off the boil.       

Goldman Sachs has upgraded Tesla Motors Inc to buy from neutral. The Wall Street titan cited the rise in the popularity of electric vehicles for the change in outlook.  

FX

The tumble in the US dollar has continued and it has now dropped to a new 31 month low. It seems that the bullish sentiment in US stocks has encouraged traders to drop the greenback, as it tends to be a popular safe-haven play lately. EUR/USD and GBP/USD have been helped by the negative move in the dollar.

The CMC GBP index is up over 55% today on the back of hopes that the UK and the EU will broker some sort of trade deal in the next few days. There were reports of discussions going on into the late hours and they are set to continue. Simon Coveney, Ireland’s Foreign Affairs Minister, said the talks are at ‘the very end’.   

Commodities

Gold has been given a nudge higher by the fall in the dollar. Lately, the inverse relationship between the two markets has been strong and most of gold’s largest moves have been dollar driven. On Monday, the yellow metal tumbled to a level last seen in early July but it has rebounded since then and if the move higher continues it might target the $1,848/50 zone. 

WTI and Brent crude are muted as OPEC+ are discussing their next move with respect to production. The group of oil producing nations couldn’t come to a conclusion earlier this week so the decision was pushed back. It seems very unlikely that the body will press ahead with the 2 million barrels per day supply increase that was originally planned for early 2021. The most likely outcome will probably be a relatively small rise in output as some nations are hoping for no change at all in production levels.  


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