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UK-EU no-deal fears hurt sterling, gold jumps

UK-EU no-deal fears hurt sterling, gold jumps

The worries that the UK and the EU will not agree to a trade deal has soured sentiment in the markets. 

Europe

When markets closed on Friday there was a sense of cautious optimism doing the rounds as Ireland’s Foreign Affairs Minister, Simon Coveney, said negotiations were at the ‘very end’. Over the weekend, Micheál Martin, the Irish premier, said the chance of a deal was 50-50. The situation is tense. One report claimed that if no progress is not made today, then talks would end, while another claimed the EU is content to keep negotiating until Wednesday. The result has been a decline in the equity markets – the DAX 30, the CAC 40 and the FTSE 250 are all in the red. The slide in sterling has assisted stocks like Diageo, Unilever and GlaxoSmithKline as they have relatively large international revenue streams, and that is why the FTSE 100 is up on the session, albeit a small gain.          

Connells have increased their offer for Countrywide PLC from 250p per share to 325p. Countryside recently pushed back on the previous approach as they wanted to consider other financing options and but now they are evaluating the revised Connells approach. Since the property market has reopened there has been a flurry of activity and Connells are clearly determined to expand – their new offer has been upped by 30%. Seeing as it as it appears the landscape in the housing market has changed, Countrywide might want to remain independent as a way of not getting swallowed up just as a vaccine for the coronavirus is in the pipeline.

Games Workshop Group PLC posted a positive update this morning as the company estimated that first half profit will increase to £185 million, and that would be a 25% increase on the year. In the six month period, profit before tax is anticipated to be at least £90 million and keep in mind that last year’s metric was £59 million. Video games saw a big jump in popularity thanks to the lockdown and Game Workshop’s online business more than made up for the poor performance witnessed by the high street division. The company announced that its dividend will be 60p.             

Kingfisher, the owner of B&Q, announced that it would be returning the business rates relief it received in the UK and Ireland. The group joins the likes of Tesco and Morrisons by pledging to return its business rates. Amid the lockdown there was a drive in demand for home improvement goods, and in turn, Kingfisher saw a rise in activity and now the company clearly thinks it is in a strong enough position to operate without government assistance. The move plays out well from a public relations point of view too. Kingfisher will return £130 million to the UK government.

Frasers Group is in talks with administrations about a potential rescue deal for Debenhams. Frasers is controlled by Mike Ashley, who has a track record of buying up failed high street business, so it is the kind of asset that would interest him. In the last few years, Mike Ashley has taken over GAME, Evans Cycles and House of Frasers, so it seems like he is determined to be a major player on the high street and Debenhams could be another string to his bow. 

McCarthy & Stone received a final takeover off from the private equity group Lone Star. The investment group has upped its bid to 120p per share from 115p per share.

Ted Baker has been hit hard by hit hard by pandemic as the first half pre-tax loss widened to £39 million form £2.7 million last year. The fashion house will cut over 950 jobs as a means of tightening its belt.            

US

The NASDAQ 100 has set yet another all-time high while the S&P 500 has pulled back a little from its record high that was achieved on Friday. US-China tensions have ticked up as the US government announced sanctions against a number of officials in the Beijing administration for their undemocratic actions in regards to the election to Hong Kong. The possibility of a $908 billion coronavirus relief package is still doing the rounds.  

Boeing shares have been given a hand by UBS as the Swiss banking titan has raised its rating to buy from neutral and lifted its price target to $300 from $150.

Tesla Motors Inc shares continue to drive higher as they have set yet another record high. There continues to be a lot of excitement surrounding the electric vehicle market.  

FX

The CMC GBP Index is under pressure because of the uncertainty in relation to the UK’s future relationship with the EU. Negotiations have been heating up as there is a limited amount of time to secure a trade agreement, and dealers are worried that trade will be conducted on basic WTO terms come January. There was a sense of optimism doing the rounds last week but over the weekend that has been swapped for a more downbeat mood. Sterling will struggle to push higher unless it looks like some sort of deal can be achieved.

USD/CAD has rebounded from the two year low it fell to on Friday on the back of the weak US jobs report and the well-received Canadian jobs update. The Canadian dollar tends to move lower with the oil market and that is what we are seeing today.            

Commodities

WTI and Brent crude have retreated from the nine month highs that were set on Friday. The fact that Chinese imports undershot economists’ estimates gave traders an excuse to book some profit. Last month, imports grew by 4.5%, missing the 5.2% forecast, and it was a dip from the 4.7% registered in October, so it seems that demand is waning.

Gold has hit a two week high as the metal’s rebound over the past week has continued. It has comfortably cleared the $1,850 mark, which was a potential area of resistance so we might see further gains from here.      


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