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Quiet start for European stocks, as tighter lockdown concerns weigh

CMC Markets

Asia markets have got off to a mixed start to the week with Chinese stocks pushing higher after the People’s Bank of China changed its rules which made it cheaper to short its currency, after the yuan hit a six-month high at the end of last week.

Stock markets have been surprisingly resilient over the last week or so, despite the increasingly diminishing short term prospect of a US stimulus deal, against a backdrop of rising infection rates across Europe, and the rising likelihood of further restrictions.

One reason behind recent stock market resilience could be a growing belief that whoever wins next month, with the polls increasingly leaning towards Biden, there will be a sizable fiscal stimulus coming whoever wins, with the only unknown being around the size of any possible package.   

This morning’s European open has been somewhat subdued, with the FTSE100 underperforming, though we did see stocks hit their highest levels in three weeks at the end of last week, while the US dollar slipped to its lowest levels in a month.

It’s set to be another important week for central bank speakers with ECB President Christine Lagarde the most notable later today, while over the course of the next few days we also get to hear from a number of Fed speakers including vice Chair Richard Clarida, while Bank of England governor Andrew Bailey will also be speaking later today, as well as tomorrow.

This last point is particularly significant in light of this morning’s news that the Bank of England has asked UK banks about their readiness for zero and/or negative rates.     

In company news International Consolidated Airlines announced that Alex Cruz would be stepping down as CEO of British Airways to be replaced by Sean Doyle, who is currently CEO of Aer Lingus.

Ladbrokes and Coral owner GVC Holdings announced this morning it has been granted four sports betting licences in Germany with a limit of €1,000 per month, with an option to increase to €10k per month if certain criteria are met. The company said that the new criteria would impact earnings by up to £40m on an annualised basis, with the shares dropping back sharply in early trade.

Engineering software company AVEVA Group announced this morning that it expects H1 revenue to come in at £333m, and has said it remains on track to meet its full year guidance.

Despite last week’s ill-informed remarks from House Speaker Nancy Pelosi last week, about UK vaccine trials, AstraZeneca has announced this morning that its latest Covid-19 antibody trials has advanced to the next stage, with the US government investing $486m for up to 100k doses, with the option of another 1m, in 2021, if required.

Last week’s rise in oil prices to three-week highs has seen a bit of a pullback after US producers continue to restore output, while the suspension of strike action in Norway which saw some of the country’s output shut off, has also seen prices drop back, dragging on BP and Royal Dutch Shell’s share price.

On the plus side Rolls Royce shares have continued to recover after last week’s share price surge saw the best weekly performance in over 30 years. While some have suggested that part of the rebound may have been partly driven by bid speculation, this seems unlikely given the failure of KIO and Singapore’s GIC in this regard, with the UK government's golden stake a big obstacle. It seems more likely that having removed the doubts over its short-term future, with the securing of extra funding, investors are taking a longer-term view that the company is now in better shape to reorientate its business model to deal with the challenges of the next ten years.

Power systems and electrical supply company XP Power is leading the gainers in the FTSE250 after reporting a 28% rise in Q3 revenues, and a decent order backlog of £125.7m.

The pound has remained fairly resilient despite rising uncertainty about whether the UK will walk away from EU trade talks later this week. The prospect of further local coronavirus restrictions being announced later today, which could see pubs and restaurants shut for weeks in certain areas, is also weighing on certain sectors.   

It’s Columbus Day in the US today so trading volume is likely to be lower than normal, however with a raft of US banks set to post their latest numbers, starting tomorrow, the main focus is likely to be on further provisions, as well as on demand for loans as the US economy starts to slow in Q3.

US stock futures are slightly higher from Friday's closing levels.


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