News

Stocks fall as vaccine optimism subsides, Vroom hits the skids

CMC Markets

Stock markets in Europe are in the red after three days of impressive gains. 

Europe

The buying mania that was experienced earlier this week has now faded as traders are starting to realise that any potential Covid-19 vaccine would take a while to be widely distributed, so therefore the pandemic won’t be under control for potentially months. A mixture of profit taking and concerns about the health crisis are weighing on stocks. Even though the pandemic is likely to rumble on for the foreseeable future, some traders might be cautious about taking an aggressive short position on stocks because it feels like a corner has been turned with respect to the drug that Pfizer and BioNTech are developing. In London, travel, transport, banking and hospitality stocks are showing relatively large losses, but they are still up on the week.            

Grafton Group PLC GB shares are bucking the wider bearish move thanks to its bullish trading update. The building materials group announced that revenue and profit for the four months until the end of October were ahead of forecasts. The operating profit in the second half is expected to be between £130 million and £140 million, and that would equate to a rise of 24-37% on the year. The company’s cash position is robust as it stands at £150 million, before lease liabilities, and the metric in June was £58.6 million.

Speaking of construction work, Vistry Group issued a positive trading statement. Full year pre-tax profit is tipped to be at the upper end of the £130-£140 million forecast. The house builder confirmed that net debt is significantly below estimates too. Vistry said it will resume paying a cash dividend, but that will not be until next November. During the summer, the firm dished out £60 million worth of shares to shareholders in lieu of a dividend. The fact it feel comfortable in making a cash pay-out is another indication of its self-belief. Crest Nicholson and Persimmon recently reinstated their dividend so Vistry are keeping in step with some of their competitors.

Burberry Group shares saw a lot of volatility today, as they initially traded higher but were dragged into the red as the wider negative sentiment took hold. The high end fashion house saw a decent rebound in business in the second quarter, and that initially lifted sentiment. The comparable store sales (CSS) metric for the second quarter fell by 6%, and that was a big improvement on the 45% fall registered in the first three months. Burberry said that it saw double digit percentage gains in sales in Korea, mainland China the US, and that added weight to the argument that things are turning around at the company.                           

US

Indices are largely lower this afternoon as traders are banking their profits from the big gains that were posted earlier in the week. The Russell 2000 is broadly seen as a good barometer for the US economy as it is much more focused on the US, rather than the global economy. The Russell is in the red, while the tech-focused NASDAQ 100 is higher. Keep in mind the NASDAQ 100 lost a lot ground earlier in the week, so it is undergoing a small recovery. The US labour market is recovering too as the initial jobless claims reading was 709,000, down from 751,000 in the last update.  

Vroom Inc shares are driving lower today on the back of the third quarter update that was released last night after the close of trading. The loss per share was 29 cents, and that exceeded expectations, as the consensus estimate was for a loss per share of 36 cents. The online auto vendor confirmed that consumer appetite increased in recent months. Vroom’s guidance was weak and that is steering the share price lower today. For the fourth quarter, the company is expecting a loss per share of between 35 cents and 41cents, while the consensus estimate was 35 cents.

Cannabis stocks like Canopy, Tilray and Aurora are in the red following yesterday’s large fall.     

FX

GBP/USD is under pressure from the not-so-hot UK economic data, and the continued uncertainty in relation to the UK’s future relationship with the EU The preliminary GDP reading for the UK showed the economy grew by 15.5% in the third quarter, which was fractionally below economists’ forecasts. The second quarter reading was revised to -20.4% from -19.8%. The services sector accounts for approximately 75% of UK economic output, and in September the industry grew by 1%, and keep in mind it expanded by 2.4% in August. There is chatter that negotiations between the UK and the EU will carry on over the weekend so the situation is dragging out.

The CMC JPY Index is up on today as traders are seeking out a safe haven asset, as the overall sentiment is weak. Yesterday, while stocks were gaining ground because of continued optimism surrounding the Covid-19 drug story, the yen fell to a nine month low, and now we are seeing a bounce back.                  

Commodities

Gold is up on the session as it pulled back some of the ground it lost yesterday. The lack of volatility in the US dollar has helped the metal today because lately any big moves in the commodity have been fuelled by moves in the greenback. It is possible that gold is in demand as traders are in risk-off mode today – the metal has historically been a common safe haven trade, and that is in force.   

Brent crude and WTI came under pressure after the EIA report showed a big build in US oil inventories. The updated showed that inventories jumped by 4.27 million barrels, while the consensus estimate was for a drop of 1.6 million barrels. It would appear the demand is weak in the US.