Equity markets in Europe are in the red.
Health concerns are playing on dealers’ minds and the rising number of new Covid-19 cases in the UK is concerning. The UK Chancellor of the Exchequer, Rishi Sunak, announced plans to assist the economy. The furlough scheme will come to an end next month, and come November there will be a new initiative that will come into force. If previously furloughed workers, work at least 33% of their usual hours, they will receive 77% of their pay. The employer will pay 55% of the wages, while the government will pay the remaining 22%, but many companies might not be willing to pay their staff 55% of their normal wages, for only working 33% of their normal hours. VAT will be kept at 5% until March 2021 as a way of encouraging spending. Businesses will be given greater flexibility in relation to making VAT payment as well as repaying government backed loans. The FTSE 100 and FTSE 250 are underperforming when compared with their continental counterparts.
Pets At Home announced that they anticipate that full year adjusted pre-tax profit will exceed market expectations, and that has helped the stock hit a new all-time high today. The group said that in the eight weeks until 10 September, it achieved a double digit increase in like-for-like sales, hence the reason for the bullish update. The government imposed lockdowns promoted an increase in demand for pets, so the company could well see a rise in demand for its services During economic downturns, people tend to cut back on discretionary spending, but there is evidence that pet owners are still pay content to spend money to take care of their pets.
Cineworld has had a very difficult few months as the lockdowns had a brutal impact on the company. In the first half, revenue was $712.4 million, which was a massive fall from the $2.15 billion in the same period one year ago. In the six month period, the pre-tax loss was a whopping $1.6 billion. Not only has most of 2020 been brutal for the business, but Cineworld also cautioned that if governments introduce tougher restrictions, it will probably need to raise fresh capital. In 2018, it completed its takeover of Regal in the US, and the deal was largely financed through debt. Today, the company warned that is it likely to break its covenants in December 2020, and the covenants in 2021, but it is optimistic that it can achieve waivers. In light of the debt issue, if the company needs to raise funds, it will probably be done through a rights issue – and that is weighing on the stock.
Smiths Group shares have fallen to their lowest level since late June as the manufacturing and engineering company announced that headline operating profit was £327 million, a 23% fall. Revenue slipped by 2% to £2.54 billion. In the summer, the company announced that it would be cutting the headcount in a bid to manage costs, and today it confirmed the restructuring programme is going well. There was a 24% cut to the total group dividend, which is 35p. Not surprisingly, the company didn’t offer a guidance on account of the uncertainty caused by the health crisis.
US
There has been some volatility in US trading and after some back and forth, the S&P 500 and NASDAQ 100 are both fractionally up on the day. It appears that the mood is fragile in the wake of last night’s tech-led sell-off.
The latest jobless claims report showed was 870,000 while economists were expecting 840,000. It is worth noting the previous reading was 860,000, so today’s update was a slight increase. For the past four weeks in a row, the number of new people claiming unemployment benefit has been below 1 million. The continuing claims reading – which is slightly behind the jobless update – dropped fractionally to 12.58 million. The labour market is recovering at a slow pace.
Darden Restaurants shares hit a six month high on the back of the well-received first quarter numbers. EPS was 28 cents which hammered the 5 cents forecast. Revenue dropped by 28% to $1.53 billion, and that was just shy of the $1.56 billion consensus estimate. It was revealed that it repaid a $270 million loan last month and that it has $655 million cash at hand. Business activity is picking up and Darden will pay a quarterly dividend of 30 cents.
FX
EUR/USD and GBP/USD are lower due to the move higher in the US dollar. Yet again the greenback is pushing higher. We heard from a number of policy makers today. Philip Lane, the ECB chief economists said that negative rates might lead to positive rates. It seems that he suggested that things could get worse before get better, but the negative bank deposit rates haven’t produced much so why would a negative refinancing rate be a help in the long-run. Andrew Bailey, the Bank of England governor, said that negative rates should kept as an option.
Commodities
The selloff ingoldandsilvercontinues as the metals have fallen to fresh multi-week low – they are now at levels last seen in July. The rebound in the US dollar in recent weeks has been a big factor in the decline in the metals as they are traded in dollars, so a more expensive greenback tends to impact the commodities. Historically, gold has benefitted from the flight to quality play, but recently, the US dollar has become a popular risk-off play, so while equities remain weak, we could see gold and silver lose further ground.
WTI and Brent crude are showing small losses today as concerns about the pandemic has impacted perceptions about demand. Oil is typically a good barometer for global demand so the wider negative sentiment in the markets is hurting oil. The energy was jolted higher yesterday as US oil and gasoline stockpiles fell so it seems we are now seeing some profit taking.
