News

FTSE 100 shrugs off UK restrictions, Carvana accelerates, dollar rallies

CMC Markets

Equities are showing decent gains as we approach the end of the trading session.

Europe

There was some indecision in the first few hours of trading as stocks got off to a strong start, before giving up some of their gains, but the positive momentum continued throughout the session. The FTSE 100 was the most volatile European index today as the UK government announced tighter restrictions in a bid to tackle the health crisis. The London market gained ground in the wake of the update as the rules weren’t as tough as some originally feared. The restrictions have more to do with social distancing and health precautions, and the economic impact is unlikely to be as bad as initially thought. European stocks took a beating yesterday and it seems the bargain hunters have been out in force today.      

Kingfishershares hit their highest level in over two years on the back of the well-received first half numbers. Total sales declined by 1.3% to £5.92 billion, but statutory pre-tax profit jumped by over 62% to £398 million. The pandemic prompted the company to close its stories, but the online division saw a surge in activity – sales increased by 164%. The e-commerce business accounted for 19% of total sales, and that figure is likely to increase in the years ahead as the company said that smaller store formats will be the new policy. The health crisis has sped up societies’ embrace of online shopping and Kingfisher are keen to go further down that avenue – this strategy should pay-off as large stores are costly to run. Demand for DIY items jumped on the back of the health crisis and even though sales have cooled off, demand is still robust as group like-for-like sales in the third quarter so far are up 16.6%.     

Beazley, the insurance specialist, warned that it claims connected to the coronavirus will be $340 million, which would be a big increase on the original forecast of $170 million. The news sent the stock to a four month low. The updated prediction factors in some sort of a return to normal day-to-day life in the second half of 2021. Beazley stated that it has a large exposure to the UK and the US so traders will be monitoring the health crisis in both countries. The cancellation of conferences because of the Covid-19 crisis was cited for the more pessimistic outlook.

Whitbread announced that it will cut its workforce by up to 6,000. The owner of the hotel chain Premier Inn, stated that the bulk of the redundancies will be voluntary. Should the group reduce the headcount by 6,000 that would roughly equate to 18% of staff. The hotel industry has been one of the hardest hit by the health crisis so it’s not exactly a shock that Whitbread is seeking to lower its costs. The company has seen a recovery in activity and occupancy rates on a weekly basis in August were just above 50%.    

JD Wetherspoon will cut up to 450 jobs as the pub chain will close six airport pubs. Marstons and Mitchells & Butlers are up more than 5% today even though pubs and restaurants will have to close at 10pm.    

RBC upgraded its rating for British American Tobacco to outperform from perform and it lifted the price target to 3,200p from 2,700p. 

Hikma Pharma now expects revenue from its generics division to be $710-$730 million, while the previous forecast was for between $720 million and $760 million. A delay in the approval of an asthma drug candidate was blamed for the slightly lowered guidance. 

US

The S&P 500 and the NASDAQ 100 are showing modest gains. Volatility in US stocks is likely to be low as Fed chair, Jerome Powell, and US Treasury Secretary, Steven Mnuchin, are testifying before the House Financial Services Committee. Mr Mnuchin said the economy is recovering quickly in the third quarter but added that targeted aid is still needed.    

Nike will announce its first quarter figures after the close of trading. In June, the sportswear company posted a loss as delivery costs spiked. The loss per share was 51 cents, which was a big drop from the 62 EPS one year previous. Revenue dropped by 38% to $6.31 billion, which undershot the $7.32 billion consensus estimate. In keeping with the times, digital sales jumped by 75%, so online sales accounted for 30% of total revenue. The jump in delivery costs weighed on margins, which fell to 37.3% from 45.5%. Last week the share price hit a record high so it seems that high expectations have been baked into the price.

Carvana shares jumped on the back of a bullish update. The online marketplace for used vehicles said it expects to post record third quarter sale – the figures will be published in early November. In previous reports, the firm didn’t give guidance updates because of the uncertainty surrounding the health crisis, but the fact the group is now content to issue bullish forecasts suggest the group is in rude health. It also expects to breakeven in the three month time period. Goldman Sachs raised its price target for the stock to $205 from $178.

Tesla shares are down as Elon Musk lowered expectations for ‘Battery Day’.

FX

The US dollar index has extended its recent bullish move. It has set a new six week high. In the last few months, the dollar has attracted safe haven flows, and even though traders are in risk-on mode today, the greenback is pushing higher again. Equities are showing respectable gains today, but they are still down greatly from Friday’s close, so the mood hasn’t fully recovered.

EUR/USD and GBP/USD are in the red because of the continued upward move in the US dollar. It has been a quiet day in terms of economic indicators. The UK CBI industrial order expectations reading for September was -48, its lowest in two months. The update could be a sign the recovery is tapering off.

The CMC CAD index has clawed back some of yesterday’s loss, as the rebound in the oil market has assisted the ‘Loonie’.   

Commodities

Brent crude and WTI are showing modest gains as traders buy back into the oil market in the wake of the huge sell-off that incurred yesterday. The energy was hammered because of concerns in relation to demand, and excess supply fears circulated too – so it was a double whammy for oil. Today we are seeing some bargain hunting, also there are production concerns in the Gulf of Mexico on account of adverse weather. It was reported the tropical storm is losing strength, but dealers are worried nonetheless.

Gold has retaken the $1,900 mark. The commodity dropped below the metric yesterday on the back of the rally in the US dollar and even though the dollar is higher today, the metal moved up too. It would seem that the lure of relatively cheap gold overpowered the inverse relationship the metal has with the dollar.       


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