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FTSE recovers early losses, with retail sector in focus

FTSE recovers early losses, with retail sector in focus

Asia markets have seen a negative end to what has been a strong month for global equities, as we head into December on the back of a wave of optimism over the rollout of a possible vaccine, with some reports suggesting we could see a rollout in the UK begin as soon as just before Christmas.

These reports that the UK could approve the latest vaccine candidate from Pfizer and BioNtech as soon as this week, while positive, haven’t been enough to support an upbeat tone for markets here in Europe, despite a raft of positive economic numbers from the likes of Japan and China. 

China’s economy has continued to rebound from its own lockdown earlier this year, with the latest manufacturing PMI hitting its highest level since September 2017 at 52.1, while the services sector also outperformed, surpassing its October reading of 56.2 with a rise to 56.4, its highest reading since June 2012, as Chinese households continuing to loosen the purse strings after a cautious summer, due to concerns about a second wave that has so far failed to materialise.

Markets here in Europe have opened lower this morning, bringing the curtain down on what looks set to be a record November for stock markets, though the FTSE 100 has since recovered into positive territory, helped by a rebound in defensives with AstraZeneca among the gainers.

The retail sector continues to be the main focus today, as Cyber Monday gets underway, after the weekend news that Arcadia Group, which owns brands like TopShop, Dorothy Perkins and Burton among others, has gone into administration. The chain of iconic brands, which have been a staple of the UK high street for decades, has been in difficulties for some time, with the coronavirus pandemic proving to be the final straw to a business model that has been on its last legs for a while now. The lack of a coherent strategy to deal with changing consumer behaviour, and the move to online shopping, has seen the business struggle for the last few years, with the result that more stores could disappear from the high street in the coming weeks, unless a rescue package is agreed.

There is some hope for some of the stores as it was confirmed this morning that Mike Ashley, owner of Frasers Group, has offered a £50m emergency loan to save Arcadia, and is waiting to hear back, while there are also reports that Boohoo might be interested in the brands, particularly on the menswear side, where they don’t have much exposure. Boohoo has already bought the Karen Millen, Oasis and Coast brands this year as these chains slipped into administration, so there could be some hope the brand names might survive, though it's unlikely that any of the stores would, given Boohoo is very much an online operation. Its shares are higher in early trade. Sports Direct, on the other hand, is still a staple of the high street, and Mike Ashley might be prepared to look at some of the stores if the numbers add up.

Sector peer JD Sports is among the better performers on the FTSE 100 this morning, as speculation about its Debenhams bid continues to ebb and flow, while on the FTSE 250, Dunelm Group's share price has risen sharply after being raised to outperform at RBC.

EasyJet shares are under pressure this morning after it was reported that the airline had asked for help with its finances, over concerns about £1.4bn of its debt, after it posted a record annual loss. Aviva also announced the completion of the sale of its Singapore business for £1.6bn this morning, which was agreed back in September.

Lloyds Banking Group has announced who will be replacing Antonio Horta Osorio as CEO when he steps down. Charlie Nunn, who is currently CEO of HSBC’s Wealth and Personal Banking, will take over once agreement is reached with HSBC over the terms and date of his departure. It's also being reported that HSBC is mulling the exit of its US retail operation, as it mulls its options over the areas of its global portfolio that are currently underperforming. Its US operations have caused the bank a great deal of pain in the past 10 years after its foray into the US mortgage market cost it billions in the wake of the financial crisis over a decade ago.

Pets at Home shares are higher after the company confirmed the purchase of the Vet Connection for £15m, in a move that is expected to complement an already successful year for the group, which has seen its shares rise over 40% so far year-to-date.

Oil prices have also continued their slide back from last week’s pre-Covid peaks, after a meeting of Opec+ countries failed to agree to an extension to the output cuts that have been in place for most of this year. This morning’s weakness in oil prices is acting as a drag on the likes of BP and Royal Dutch Shell in early trading.

The pound continues to hold up well ahead of what could be a key week for EU/UK trade talks, with the hope that a deal could be pushed through before the end of the week. It's being reported that the EU’s chief negotiator, Michel Barnier, is coming under pressure from the EU Commission to bring a deal back to Brussels sooner rather than later. UK environment secretary, George Eustice, also expressed optimism about the negotiations, suggesting that if sufficient progress were made then negotiations could be extended.  

The UK government is also looking to head off a revolt by its own MPs by publishing a risk assessment behind the new tier system, when the latest lockdown ends later this week. We also have the latest UK lending data for October, which is expected to be a little mixed. Mortgage approvals are expected to slow modestly from the 13-year high of 91,500 in September to 84,000, while consumer credit is expected to improve from -£0.6bn.

The US dollar continues to come under pressure, moving to its lowest levels in over two years against a basket of currencies, while the euro has moved back to within touching distance of the 1.2000 area which, has in the past prompted some jawboning on the part of ECB officials on the risks of a stronger currency.

US markets look set to return from their Thanksgiving weekend on the back foot, taking their cues from today’s weaker Asia and European sessions, with the main focus set to be on the latest Chicago PMI, as well as the retail sector, after data which showed that Black Friday traffic in stores fell 52%, while online sales surged.

In M&A news S&P Global has announced that it is in advanced talks to buy IHS Markit for about $44bn. IHS Markit, which provides PMI data, saw its shares hit record highs last week with the S&P bid, well above the Friday close valuation of $36.9bn.

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