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FTSE 100 outperforms as sterling slips to a 2021 low against the US dollar

An array of £20 notes

We’ve seen a more subdued trading session for markets in Europe today, with the FTSE 100 outperforming, while the rest of Europe has seen some modest profit-taking on the gains of the last two days, with the FTSEMib and DAX amongst the biggest decliners.

Europe

Sentiment did get a lift just before midday after Pfizer/BioNTech reported that three vaccine doses of its vaccine helped to neutralise the Omicron variant, however it proved to be short-lived. While this is undoubtedly welcome news in the fight against the virus, it’s also good news for both company’s balance sheets in the longer term, as more and more people get vaccinated.

That also helps explain why Croda International is amongst the best performers on the London market today, given its role as a lipid supplier to Pfizer for the covid vaccine.

House builder Berkeley Group shares are higher after reporting an upgrade to its full year guidance, after a decent H1, which saw revenue rise by 36.3% to £1.22bn. Profits before tax rose 26% to £290.7m with the company raising its annual pre-tax profit guidance by 5% for the next three years with the aim of delivering profits of £625m by 2024/2025. This has given the wider sector a boost with Barratt Developments and Persimmon getting a lift.

Travel firm TUI shares initially slid sharply after the company warned that the threat of Omicron was hampering the number of bookings over the winter period. The company said it was looking at cutting winter capacity unless demand picks up. Full year revenue came in at €4.73bn, very much at the lower end of expectations, with losses coming in at €2.46bn. Winter bookings are currently running at 62% of 2018, 2019 levels, however recent concerns over Omicron has prompted a bit of a drop off.

Sentiment was further hampered by reports that the UK government was looking at implementing a plan B of vaccine passports on large events, and a working from home directive in response to rising cases of the Omicron variant. Despite this the shares have pulled back their early losses, in the hope that any curbs will be temporary, and the company can pick up the slack later next year

Nonetheless reports of tighter restrictions has served to send airlines lower with IAG, easyJet and Ryanair slipping back, along with Rolls-Royce ahead of its Q3 trading update tomorrow.  

US

US markets could well be on course for a retest of their previous peaks, after opening higher today, however trading has been cautious, with this week’s outperformance in tech helping to drive the move higher. The S&P500 did make an early attempt to move through the 4,700 in early trade but has since slipped back.

Today’s JOLTs numbers for October showed that the US economy had over 11m vacancies, a record high number.

Apple shares which closed at a record high yesterday helped drive yesterday’s move, with the Nasdaq and S&P500 posting their best one-day performance since March. It’s been an extraordinary journey over the past three years for Apple, becoming a $1trn company on 2 August 2018, it then reached $2trn just over a year later on 19 August 2020. The company now stands within touching distance of $3trn despite concerns over supply chain issues, and controversy over its $275bn deal with China which it signed back in 2016.

This morning’s news from Pfizer and BioNTech reported that three vaccine doses of its vaccine helped to neutralise the Omicron variant have seen the shares of both companies open higher, however any gains have been muted.

GameStop shares are also in focus ahead of its Q3 numbers which are due out after the bell. In Q2 losses came in at $0.76c a share. More worryingly revenues were down on Q1, which means it’s not enough to just cut costs to sustain a tired business model, revenues need to increase as well, and they aren’t. Will we see a better outcome in Q3?

FX

The Australian dollar has continued to hold up well, rising for the third day in a row with the US dollar looking a little softer today. The pound is among the worst performers after this morning’s reports that the UK could be going into a new phase of limited restrictions in response to rising Omicron cases. There has been a suggestion that today’s possible announcement of a Plan B is being used as a smokescreen for the wider uproar over whether there was a Christmas gathering in Downing Street over a year ago in contravention of Covid rules at the time.

Whether or not that’s true, the prospect of some modifications would appear to rule out the prospect that the Bank of England might look at a rate rise next week. The prospect of action next week had already been in decline since the comments from external MPC member Michael Saunders last week, where he expressed concerns over Omicron. Today’s reports of a tightening of restrictions would appear to rule out the prospect of a rate move next week completely, sending the pound to its lowest level this year against the US dollar.

Commodities

After two days of strong gains crude oil prices have slipped back a touch as markets continue to assess the likely longer term impact of the new variant on demand. Having peaked at levels just above $86 in October, and rebounding from lows just above $66, we’ve seen 50% of those losses reversed in the past few days. The last inventory data showed a decline of -241,000, against an expectation of -1.52m.


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