European equity markets are largely lower as we approach the close of trading.
Dealers have booked some profits form the impressive gains that were racked up yesterday thanks to vaccine hopes and optimism that President Trump will step down early next year without a tantrum. The FTSE 100 is underperforming its eurozone equivalents as oil, mining, pharma and banking stocks are contributing to the pressure on the UK benchmark. It is worth noting that commodity stocks enjoyed a very bullish move yesterday so now we are seeing a small pullback.
Rishi Sunak, the UK Chancellor of the Exchequer, dished out the dreadful news about how much the Covid-19 crisis will cost the UK economy, £394 billion is the predicted budget deficit for 2020. GDP this year is tipped to be -11.3% and then it is expected to rebound by 5.5% next year. Even if the economy recovers by that amount, GDP will still be down roughly 6.5% from the pre-pandemic level. The jobless rate is expected to peak in the second quarter of 2021 at 7.5%. Mr Sunak mapped out a £3 billion scheme to assist with the labour market and £4 billion will be invested in levelling up other parts of the country.
Melrose shares hit their highest level since June on the back of a positive trading update. The turnaround specialist suffered greatly earlier this year because of the pandemic. Its £8.1 billion takeover of GKN, the aerospace company, held the company back because the business has been in the firing line from the health crisis. This morning Melrose announced that it is trading at the top end of the management’s expectations. Some uncertainty was expressed for the aerospace sector, but at the same time the automotive business has enjoyed a strong recovery. Despite the high restructuring costs, Melrose believes that net debt will fall this year.
Tullow Oil PLC GB shares saw a lot of volatility as they initially traded higher but they have since pushed lower. The oil exploration company announced that it plans to see cash flow of $7 billion over the next ten years. That prediction is based off of oil prices being $45 in 2021 and $55 from 2022 onwards. Earlier this month the group sold off its operation in Uganda for $575 million to France’s Total. This morning the group confirmed that it is not in any rush to dispose of assets to raise cash, and that has reassured traders, especially seeing as the oil market has been on the rise recently. Tullow said that 90% of future capital expenditure will be dedicated to West Africa.
Babcock International, the defence company, said that first half revenue fell by 8.7% to £2.24 billion and headline operating profit declined by 55% to £76 billion. Underlying operating profit – which strips out exceptional items – dropped by 43% to £143 million. Uncertainty still remains in regards to the civil aviation sector and that’s why no guidance was offered. Babcock’s order book slipped to roughly £17 billion, from £18 billion last year, which isn’t too bad when you take into consideration what has gone on in the aviation industry.
Future PLC, the media and publishing group, has agreed to acquire GoCompare.com Group PLC for £594 million. The news drove up the gocompare shares, while Future shares have tumbled. Seeing as Future publish a wide range of magazines, it is odd that they are looking to takeover a financial comparison website. It could be a diversification play. It is likely that gocompare.com will see an increase in business as people will probably look to tighten their belts in the near-term because economic conditions are likely to deteriorate.
Virgin Money UK PLC set aside just over £500 million for bad debt provisions and that clobbered the profit metric.
The Dow Jones and the Russell 2000 have retreated from their record closes last night as dealers are trimming their positions as the US will celebrate Thanksgiving tomorrow. There was a raft of economic announcements posted today. The initial jobless claims reading jumped from 742,000 to 778,000. Personal spending for October was 0.5%, down from 1.4%, and personal consumption came in at -0.7%, and that was a sharp fall from the 0.7% registered in September. The final reading of the University of Michigan consumer sentiment was 76.9, a slight revision from the 77 posted in the preliminary reading.
Hewlett Packard’s consumer division saw a jump in demand for PCs and printers as people decked out their home offices amid the pandemic. In the fourth quarter, EPS was 62 cents, and that topped the 52 cents that equity analysts were expecting. Revenue was $15.3 billion, topping the $14.7 billion forecast. Consumer revenue rose by 24%, but that was counteracted by the 12% fall in revenue witnessed by its commercial unit. The group’s guidance was well received as EPS is projected to be 64-70 cents, while analysts were predicting 54 cents.
The authorities in China have announced a probe in to certain sections of the new energy vehicle (NEV) manufacturing sector – there are restriction on companies investing in capacity. NIO Inc shares are down 1.5%.
Gap shares have tumbled today as the company showed signs that it is bouncing back but the results failed to measure up to analysts’ expectations. Third quarter EPS was 25 cents, and that undershot the 32 cents consensus estimate. Revenue was largely flat at $3.99 billion, which was a little ahead of forecasts. Same store sales increased by 5% and that was a pleasant surprise as traders were anticipating -0.3%. Like with other retailers, digital sales outperformed as they jumped by over 60% and that accounted for 40% of total sales.
GBP/USD and EUR/USD haven’t moved much as volatility in the currency market has been low today. It has been a quiet day for economic indicators from Europe. Even though the spending review from the UK promoted a lot of political headlines, it didn’t spark much volatility in sterling. The UK-EU trade talks are still in focus and even though there hasn’t been any major progress, sterling is holding up relatively well.
Gold is up on the session following two painful days of declines. The yellow metal came close to the $1,800 mark but it seems that bargain hunting and short covering helped the asset. The wider bearish mood in the markets is also a factor in the upward move.
WTI and Brent crude are higher again on increased chatter than OPEC+ will not ease up on productions cuts – therefore maintain the reasonably steep output cuts that are in place. The EIA report showed that US oil stockpiles fell by 754,000 barrels, while gasoline inventories rose by 2.18 million barrels. The data added volatility but the speculation about OPEC+ is the main driving force of the session.
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