News

Sterling soars, FTSE 100 tumbles, Snap crackles and pops

CMC Markets

The FTSE 100 is deep in the red thanks largely to the rally in the pound.

Europe

Optimism is circulating with respect to the possibility of the UK and the EU achieving a trade deal, hence the upward move in sterling. Stocks like Diageo, AstraZeneca, Unilever and GlaxoSmithKline and British American Tobacco are weighing on the British index because of the rally in the pound. The companies all earn a relatively high portion of their total revenue from overseas, so sterling’s positive run has pushed them into the red. The major European indices are showing losses too as traders on this side of the Atlantic are worried about the tougher restrictions brought on by the pandemic. The fact that US lawmakers have yet to strike a deal over the proposed Covid-19 relief package is playing a role in the bearish move too. 

C&C group GB are the owners of the Magners Irish cider, and the drinks company has been under pressure this year because of the government imposed lockdowns. In the first half, net revenue tumbled by over 55% to €386.4 million. The forced closure of pubs and bars in the UK and Ireland has had a major impact on the drinks business, and the fall in the ‘on-trade’ business is expected to be partially offset by a better performance in the ‘off-trade’ business – sales in shops in off licences. Adjusted EBITDA slumped from €79.9 million one year ago to €4.9 million. Cash flow was -€28.4 million, and that was a big swing from the €90.9 registered last year. Net debt increased by 8.1% to €371.6 million. C&C are very dependent on a robust hospitality industry, are seeing as restrictions in Europe are getting tighter, its outlook is likely to remain subdued in the next couple of quarters. 

Centamin Egypt shares have tumbled to a six month low on the back of the company’s third quarter update. In the three month period, gold production increased by 30% to 128,240 oz, and revenue jumped by 43% to $230 million. In early August, the yellow metal hit a record high, so the company’s timing in relation to output was good. The miner predicts that full year output for 2020 will be 445,000-455,000 oz, but for 2021 its production guidance is 400,000-430,000 oz. It is possible the less bullish production forecast for 2021 has dented the stock price.

Fresnillo, the largest silver miner in the world, also released a third quarter update today. In the three month period, silver output slipped by 2.3% to 13,300 koz, and gold production was 172.7 koz, a drop of 6.3%. Fresnillo left its full year silver production guidance unchanged at 51-56 moz. The miner lowered its full year production guidance. The new forecast is 745-775 koz, and keep in mind the old forecast was for 785 koz and 815 koz.           

US

The mood on Wall Street is slightly bullish even though there is still no agreement between the Democrats and the Republicans in relation to the planned stimulus package. Larry Kudlow – an economic advisor to the Trump administration – said it was an ‘optimistic morning’ for talks. Traders appear to by buying into the market even though it seems unlikely that anything will be achieved in the near-term.   

Netflix inc experienced a bust in popularity in the 2020 because of lockdowns. The streaming service added almost 26 million new paid subscribers in the six month period which was a record for the company. In recent months, government restrictions have been broadly easing, so dealers were anticipating a tapering off in numbers, and that’s what we saw in last night’s third quarter update. Netflix added 2.2 million new paid subscribers, and that missed the 3.57 million forecast that equity analysts were expecting. Revenue was $6.44 billion, which was slightly ahead of estimates. EPS was $1.74, and that was a big miss because traders were expecting $2.14. Production of films and TV shows was impacted by the pandemic, but Netflix expects to incur negative cash flow in the final quarter, because of production work. 

Verizon Communications inc (US) published its third quarter numbers. EPS was $1.25 and that topped the $1.22 that equity analysts were expecting. Operating revenue slipped to 4.1% to $31.54 billion. The pandemic prompted a surge in video and teleconferencing so that has benefitted Verizon. The company confirmed that it signed up 283,000 new paid customers, and that topped the 268,000 consensus estimates.

Snap inc shares surged to a record high on the back of its third quarter numbers. Daily active users increased by 4% to 249 million. Average revenue per user was $2.73, and that easily topped the $2.27 consensus estimate. The social media company predicts that fourth quarter revenue will experience growth of 40-50%.          

FX

The US dollar index fell to its lowest level since early September as constant chatter of a stimulus package is weighing on the currency. Towards the end of last month, the greenback hit a two month high, but since then is has been driving lower, and that fits in with the wider negative trend that has been in place for much of 2020.

GBP/USD is up on the day, partially because of the weaker dollar, but there is optimism surrounding the UK-EU trade talks, so that is assisting the pound too. The currency pair hit its highest level since early September as there is talk that discussions between the UK and the EU will restart, and speculation the negotiations could bring about a deal by mid-November. 

There were no major economies announcements from the eurozone, but EUR/USD has been pushed up on account of the slide in the dollar. 

There was some mixed data from Canada today. The August retail sales report showed 0.4% growth, missing the 1.1% forecast, while the September CPI reading increased to 0.5%, topping the 0.4% consensus estimate. USD/CAD is in the red.             

Commodities

Gold’s inverse relationship with the US dollar is helping the metal. The commodity is listed in dollars so a cheaper dollar has lifted the asset. Gold hit its highest level in over one week. A break above the $1,933 mark could pave the way for $1,973 to be tested.

WTI and Brent Crude are nursing large losses as dealers are worried about future demand prospects on account of the tighter restrictions. The mixed EIA report hurt the oil market too. US oil inventories fell by 1 million barrels, while the consensus estimate was for a drop of 875,000 barrels. Gasoline stockpiles jumped by almost 1.9 million barrels, and that caught traders off guard because the consensus estimate was for a draw of 1.8 million barrels.        


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