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European stocks tread water, as US dollar slips back

FTSE100 trades sideways

European markets have had a steadier and pretty uneventful day, trading quietly with little in the way of direction, with the FTSE100, trading around the flat line, and FTSE250 edging higher. 

Europe

The continued resilience in oil prices is continuing to act as a drag on the travel and leisure sector, with IAG the biggest faller, slipping to four-week lows, after Heathrow Airport said it would be hiking passenger charges for airlines using the hub to £30, from £19.60. Unsurprisingly this hasn’t gone down well, however it could also be seen as good news for Gatwick given that IAG has shifted a lot of its operations away from the West Sussex airport. 

Digital education services provider Pearson shares are starting to claw back some ground after last week’s big losses, which saw the shares hit 11-month lows yesterday, with both Credit Suisse and Berenberg upgrading the company on the basis that most of the downside is probably in. 

Meggitt shares have shrugged off reports that the UK government has referred its £6.7bn deal with Parker Hannifin to the CMA on national security grounds. This referral is expected to take six months with a report set to be delivered by 18th March 2022.  Meggitt said they still expected the transaction to be completed by Q3 of 2022.

888 Holdings latest Q3 numbers has seen revenues rise by 7% to £229.9m, with B2C betting underperforming relative to a year ago The company said that trading is in line with expectations, however the decision to cease operations in the Netherlands until the second half of 2022, due to local licensing changes which require the company to apply for a gambling licence, is expected to negatively affect EBITDA by around $10m and has seen the shares drop back in early trading. 

A disappointing set of Q3 results for Moneysupermarket.com today with revenues year to date down by 11%, at £238.6m, and on a quarterly basis down 10%. The biggest falls have been in travel insurance which is down 55% year to date, though in the last quarter this has seen a pickup, with a rise of 29%, as travel restrictions get eased. Full year guidance was kept unchanged

The company also announced the acquisition of cashback business Quidco for £87m in cash, with another £14m deferred

Wise, formerly known as TransferWise, which came to market by way of a direct listing in the summer has seen its share price fall back after reporting Q2 revenues of £132.98m a rise of 25% year on year, and an 8% increase on Q1. Active customers increased by 22% to 3.7m over the last 12 months.

US

US markets opened higher despite some ropey housing starts and building permits data for September, with the Dow moving to within touching distance of its previous record highs.

Proctor & Gamble shares have slipped back despite beating expectations on profits and revenues for Q3. The company warned that it was having to contend with increasing costs in the form of higher transportation costs and commodity prices.

Johnson&Johnson, makes of the single shot Janssen vaccine has seen Q3 profits come in ahead of expectations with vaccine sales adding an extra $502m to its quarterly sales numbers, although revenues came in a little light. The company did raise its full year guidance by $0.15c on a mid-point basis to around $9.80c a share.

United Airlines is also reporting its latest Q3 numbers after the bell and is expected to post a loss of $1.40c a share. Costs in Q3 are expected to increase due to rising fuel prices, while United also warned that booking levels in August were likely to be lower and continue to be subdued into September and October. Passenger numbers in H1 were at 49% of pre-covid levels, with the hope that by the beginning of next year the airline would be able to return to profit. The airline has already said it is gearing up to operate more than 3,500 daily domestic flights in December, or over 90% of its pre-pandemic capacity.

Apple’s share price has continued to edge higher after the company unveiled two new MacBook Pros, one with a 14-inch screen and one with a 16-inch screen come with Apple’s own new M1 Pro processors, and a hefty price tag, due to start deliveries next week. Apple says the new chipsets are faster than the equivalent Intel chips, which they are dropping.

When Netflix reported its Q2 numbers back in July, the shares slipped back sharply, not because they missed on Q2 subscriber growth, which was already a very low bar, but because the company guided down expectations for Q3, from 5.86m to 3.5m. In the first half of this year Netflix has seen its worst start to a year since 2016 when it comes to adding new subscribers raising concerns that it might well struggle to achieve break even this year, even if that remains its ambition. One advantage in its favour is its international content and with all the talk about the success of the South Korean dystopian drama, Squid Game, we could well see subscriber numbers beat expectations, when the company releases its latest numbers later today.

FX

The US dollar has continued to come under pressure today, hitting its lowest levels this month, with the biggest losses coming against the New Zealand and Australian dollar, as well as the pound, as traders mull the prospect of an upward move on rates from all three central banks in the coming weeks.

The greenback appears to be suffering on the back of rising rate hike expectations overseas, with a few voices expressing concern that the Fed could be in the cusp of a policy mistake, by firstly, not paring back on its stimulus plan quickly enough, and secondly not setting out a path for higher rates.

This seems a little perverse given that the Bank of England appears to have the opposite problem with traders betting that the UK central bank might be about to tighten policy too quickly, and as soon as next month. UK money markets do appear to be getting ahead of themselves when it comes to rate hike expectations over the next 12 months, however that doesn’t mean the bank won’t start down that road. Its how the manage the message that’s important, and certainly one rate hike of 0.15%, before the end of this year does seem likely. The bigger question is how the MPC manages the guidance for any future rate moves if they do pull the trigger this year.     

Commodities

Copper prices made another attempt to retest its record highs earlier today, however it has since slipped back.

It’s been a similar story for crude oil with an initial move higher in early trading, however, there continues to be a lack of follow-through. Yesterday Brent crude hit a three year high, however finished the day sharply lower suggesting that we may have seen a short-term top. We would need to see a break below $83 a barrel for this to play out.

Precious metals are higher today, with the weaker US dollar probably playing a part in today’s gains, as silver and palladium outperform.

Bitcoin has continued to edge higher towards its record highs of $64k as the ProShares Bitcoin ETF starts its first day of trading.


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