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Bulls in control, Tesla accelerates, gold falls again

Bulls in control, Tesla accelerates, gold falls again

Stock markets are showing decent gains on the back of continued vaccine optimism and signs that President-elect, Joe Biden, will move into the top job in a smooth fashion. 

Europe

In the wake of the US Presidential election, there was noise from the Trump team that fraudulent voting occurred and there were fears about a possible lengthy legal battle as votes could be contested. Although President Trump has not conceded, it is starting to look as if he will go quietly. It was reported that federal funds have been allocated for the handover for Mr Biden. Equity traders welcomed the signals that the transition of power should be uneventful.

The rally in commodities like platinum, copper and oil has given a boost to Glencore, Antofagasta, BHP Group, BP and Royal Dutch Shell.  The airline sector has also enjoyed a big rally too. England will soften its quarantine rules – whereby passengers to the country will have to self-isolate for five days and then if they pass a Covid-19 test, they will no longer have to quarantine. The International Air Transport Association is looking to introduce a ‘health passport’ whereby vaccinated passengers can fly freely. Some people are likely to be sceptical about the vaccines and therefore might not want to go down that route.            

AO World PLC shares saw a lot of volatility today on the back of the solid first half figures. In the six month period, revenue increased by 53.2% to £717 million – in line with recent forecasts. The company swung to a pre-tax profit of £18.3 million from a loss of £5.9 million last year. Adjusted EBITDA was almost £29 million and that was a huge improvement on the £1 million recorded one year ago – that was driven by a major increase in EBITDA margin to 4%, from 0.2%. The online electrical goods retailer cleaned up amid the pandemic as people spent more money on improving their homes as a result of the lockdowns. The company’s German division is on track to achieve monthly positive EBITDA during the peak shopping season and it should deliver a profit by the full year 2022. At the start of the trading session, the stock nudged higher, and at one point it was a whisker away from resting the record high that was posted earlier this month. The stock quickly turned lower and is now down over 9%.     

Wizz Air Holdings PLC, the low cost carrier confirmed that it will partner with a testing company to offer a discount for Covid-19 tests for passengers. The agreement is mutually beneficial, especially in light of the newly announced UK rules with respect to quarantine.

Pets at Home Group PLC predict that full year underlying pre-tax profit will be in line with last year’s level. Demand for pets increased amid the pandemic as the surge in the number of people working from home has prompted some people to buy a pet. In the first half, revenue increased by 5.1% to £574.4 million but the underlying pre-tax profit was £39.6 million, down from £41.7 million last year. The company confirmed that the strong retail sales and veterinary services seen in the second quarter has continued into the third quarter. One could argue that the pet sales at the beginning of the year should still benefit the company in the quarters ahead because of vet services and pet food. In tough economic times, some pet owners would rather cut back on spending for themselves rather than their pet, so that should al assist the group. 

Whitbread is one of the biggest gainers in the London market thanks to an upgrade from HSBC, who lifted their price target to 3,900p from 3,095p.       

US

Stocks are rising in New York and the Russell 2000 has set a new record high. The Dow Jones – cash market – has traded above 30,000 for the first time. The prospect of Mr Biden taking over from President Trump without any fuss has boosted sentiment.  The Conference Board consumer confidence reading for November slipped to 96.1 from 101.4 in October. It is not a huge surprise that consumer sentiment is weaker seeing as parts of the US have introduced restrictions because of the health crisis.        

Best Buy delivered impressive third quarter results. The retailer posted a 21% rise in revenue to $2.06 billion, topping the $1.7 billion consensus estimate. EPS came in at $2.06, topping the $1.7 forecast. Same store sales surged by 23% and that easily exceeded the 13.6% that equity analysts were anticipating. Best Buy cashed in on the e-commerce boom as online sales jumped by 174%. It is worth noting that Target and Walmart also posted impressive quarterly data recently. 

Dick’s Sporting Goods Inc also benefited from the pandemic as consumers stocked on sports items. In the three month period, EPS were $2.01, easily topping the $1.01 forecast. Revenue rose by 23% to $2.41 billion, ahead of the consensus estimate. Online and sale store sales increased by 95% and 23.2% respectively. The company didn’t offer any formal guidance with respect to the fourth quarter, but it confirmed there have been favourable trends in the quarter so far.

Tesla Motors Inc shares have set yet another record high and the market capitalisation exceeded the $500 billion mark. 

FX

Yesterday was a volatile day for the US dollar index as it dropped to its lowest level in over two months but rallied late in the day and then closed higher. Volatility was low for much of the day and the dollar pushed a little lower in the wake of the US consumer confidence update.

In step with that, EUR/USD is higher. The slightly better than expected data from Germany gave a little help to the euro too. The German IFO business climate reading slipped from 92.5 in October to 90.7, slightly ahead of the 90.7 forecast. In the third quarter, the German economy grew by 8.5%, which was revised up from the preliminary report of 8.2%. GBP/USD has experienced low volatility today and keep in mind it reached a two month high yesterday.   

Bitcoin (USD) has topped the $19,000 mark – a level last seen in late 2017. The cryptocurrency has been an extremely bullish run recently.    

Commodities

Gold has tumbled again and is currently close to the $1,800 mark. Yesterday the yellow metal fell below a closely watched support area $1,848/50 and it seems that the selling pressure ramped up today. Dealers are clearly in risk-on mode as they are snapping up stocks and oil, and it would appear they are keen to drop gold in the process.

Brent crude and WTI are enjoying rallies again on continued optimism surrounding vaccine hopes and speculation that OPEC+ will keep the existing production cuts in place. The energy market is sensitive to the perceived health of the world economy and the positive news in regards to potential coronavirus drugs has encouraged buying in the energy market.         


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