Stock markets in Europe are set to finish in the red as traders are increasingly worried about the prospect of the UK and the EU not reaching a trade deal.
Sunday has been touted as the deadline but then again numerous deadlines have come and gone in the saga. This time is a bit different though as the rhetoric has been upped and the transition period ends in less than three weeks. In light of how things have gone recently and with the weekend around the corner, some dealers are trimming their exposure to equities.
Typically the softer pound helps the FTSE 100 but in light of the selling pressure on banking, oil and mining stocks, the index is in the red. The regulatory arm of the Bank of England has announced that banks can resume paying dividends, but the fears of a no-deal scenario are too great, and the sector is in the red. Banks are the lifeblood of an economy so any shock to the economy because of no deal situation is likely to be felt by the banks.
Rolls-Royce shares suffered today on the back of the news that the company’s cash outflow in 2020 will be worse than expected. The engineering giant now predicts that £4.2 billion will flow out of the group this year and keep in mind the previous forecast was for an outflow of £4 billion. Rolls confirmed that is its restructuring scheme is going according to plan and it should achieve its target of £1.3 billion cost savings by 2022. The group also maintained its guidance that it will turn cash flow positive at some point during the second half of 2021. It is aiming to achieve £750 million in free cash flow, excluding disposals, as early as 2022. It has been a brutal year for the engineering titan but recently it raised £3 billion so it should be in a comfortable position to endure the near-term turbulence.
Capita has been awarded a £140 million contract with the Ministry of Defence, the contract will commence in 2022 when the existing 10 year contract ends.
The housebuilding sector is lower across the board as concerns about a no-deal scenario are weighing on the industry. In June 2016, when the UK voted to leave the EU, the house builders were clobbered and seeing as the property market has enjoyed a positive run lately, it seems that dealers are distancing themselves from the sector. Bellway issued a mixed trading update and a result it is holding up better than some of its peers like Vistry. Bellway predicts that volumes for the year ending July 2021 will increase by 25%. A 50p dividend was declared but the company is a little worried about future demand because of the impending changes to stamp duty that will come into play in April 2021. In addition to that, the Help to Buy Scheme will end in 2023.
The UK regulator, the CMA, will carry out an in-depth investigation of the planned merger between O2 – owned by Telefonica - and Virgin Media, which is controlled by Liberty Global. The planned deal would put pressure on BT Group, but the British regulator is concerned about competition should the transaction go-ahead.
The continued bickering between Republicans and Democrats over the proposed stimulus relief package is hanging over stocks. In light of the disappointing jobless claims report yesterday, there are growing concerns the economic rebound is fading, so a firm fiscal response is needed.
Walt Disney's streaming service, Disney+, has been extremely popular, largely because of the lockdown effect. The streaming service now has almost 86.6 million subscribers and it is worth noting that it launched just over one year ago. Disney is now projecting that it will have 230-260 million subscribers by 2024.
NIO, the Chinese electric vehicle company, is going down the Tesla route as it wants to raise funds through a 60 million share offering. The stock is up more than 970% on a year-to-date basis and it is clearly using the opportunity to get its hands on funds while its popularity is high. Earlier in the week, Tesla announced plans to raise $5 billion from a stock offering, its second such move in three months.
Airbnb floated on the stock market yesterday and it attracted a lot of attention as its valuation is in the region of $86 billion, while the combined market value of Marriott Worldwide and Hilton Worldwide is approximately $72 billion.
GBP/USD has tumbled to a one month low as worries that trading between the UK and the EU will be done on Australian style terms come January. Tensions between London and Brussels have been rising recently and a few hours ago Prime Minister Johnson warned that a no-deal situation is ‘very very likely’. Sterling is also suffering from the fact that today is Friday and some traders are worried about holding a position over the weekend in light of how things have been going lately.
EUR/USD has been hit by the positive move in the US dollar. The single currency gained ground versus the greenback yesterday despite the fact the European Central Bank upped its pandemic emergency purchase plan (PEPP) by €500 billion and the time frame was pushed back to March 2022, and today we seeing a slight reversal.
Gold seems to be benefiting from the flight to quality play. European equity markets are showing sizeable losses and there is a bit of negative sentiment doing the rounds in the US too. The metal has been broadly moving lower since early November, and while it holds below the 50-day moving at $1 875, the bearish move should continue.
WTI and Brent crude oil are in the red this afternoon as profit taking has pushed the energy market lower. Yesterday, oil surged to a fresh nine month high, in fact, Brent crude topped $50, but it is now back below that metric. Seeing as today’s negative move is small by comparison to yesterday’s surge, it suggests that the overall sentiment is still reasonably positive.