News

Volatility remains low, sterling still soft

CMC Markets

The major indices are mixed as uncertainty is circulating with respect to the UK-EU trade situation. As a gesture of good faith, the UK will withdraw controversial elements of the internal markets bill, which should help create an environment for a potential deal to brokered. Tomorrow, Prime Minister Johnson will go to Brussels, so the negotiations will be centre stage. The mood in the markets today has been subdued as tomorrow looks to be the main focus of the UK-EU trade talks.

As far as the pandemic is concerned, today was historic because Pfizer’s-BioNtech’s Covid-19 vaccination was administered to a patient in the UK – the first in the world. The news made a huge amount of headlines but there was a relatively calm reaction by stocks because the vaccine news has already been priced in. The potential Covid-19 vaccine being developed by AstraZeneca and Oxford University received praise from the Lancet medical journal, but it would appear that it needs more work.          

Ashtead issued a positive update this morning and that pushed the share price to a record high, but it is off the highs of the session. The British plant hire group earns the bulk of its revenue in the US and there are high hopes for infrastructure projects that President-elect Joe Biden plans to introduce. Sterling has been soft recently on account of the trade fears between the UK and the EU, and that has helped the Ashtead stock price too. The firm announced its unaudited second quarter numbers and even though revenue and underlying profit before tax slipped by 5.1% and 11% respectively, it predicts that full year figures will be ahead of previous expectations. The interim dividend was held steady at 7.15p.

Ferguson, the plumbing and heating specialist, saw an increase in business this year as a result of the pandemic. A large portion of the public decided to make home improvements, probably because the lockdowns promoted people to stay at home. In the first quarter, underlying trading profit increased by 12.2% to $486 million. Revenue edged up by 1.8% to $5.3 billion. The latest updates from companies that are connected to the home improvements business such as Lowe’s, Home Depot and Kingfisher have all been positive so it seems that Ferguson is keeping up with the rest of the pack.

Intercontinental Hotels is one of the biggest fallers on the FTSE 100 today after the US bank, Jefferies, downgraded it to underperform from hold, and lowered the price target from 4,100p to 3,550p. Yesterday the stock hit a 10 month high so the move by Jefferies acted as a nice excuse for traders to book some profit. The hopes in relation to mass vaccinations have assisted the leisure sector and Intercontinental have enjoyed the boost.                  

Morgan Stanley has resumed its coverage of Rolls-Royce and the bank issued an equal weight rating with a price target of 132p.

Kantar Research reported that grocery sales in the UK last month were £10.9 billion – its highest on record. The fact that Christmas is on the horizon was probably a factor in the sales. In the 12 weeks until late November, Morrisons, Sainsbury’s, Tesco and Asda saw sales rise by 13.7%, 10.8%, 10.4% and 7.7% respectively. 

US

The mood on Wall Street is lacklustre and the major equity benchmarks are a touch higher. In the US, the health crisis is still a worry but that is being balanced out by the prospect of a stimulus package.  

Tesla announced plans to raise $5 billion from a stock offering – the second $5 billion offering in three months. The electric vehicles manufacturer is simply tapping to the extreme popularity of its stock as it clearly feels that now is a good time to secure new financing. Yesterday, the stock hit yet another record high so the timing is no coincidence. Tesla’s share price is a little lower today. 

Brown-Forman, the wine and spirits producer, delivered respectable second quarter numbers. EPS was 51 cents, which topped the 50 cents consensus estimate. Revenue was $985 million, ahead of forecasts. On account of the current climate, no guidance was issued.

Stitch Fix shares soared to an all-time high on the back of its well-received first quarter numbers EPS was 9 cents and that was way better than the 20 cents loss per share that equity analysts were predicting. Revenue was $490.4 million and that compared with the £481.2 million consensus estimate. The personal styling business saw its client base rise by 10.2% to $3.8 million. Some clients are attracted to the online business seeing as a lot of shoppers were avoiding busy shopping districts.  

FX

GBP/USD is in the red due to the worries that the UK and the EU will not reach a compromise with respect to a trade deal. The currency pair is off the lows of the session after the British government agreed to withdraw the legislation that would breach international law with respect to the Northern Ireland protocol. The move was seen as a gesture to soften the negotiation position, which should help its relationship with the EU. We are not of the woods yet, but that should help remove some of the tensions, and therefore there is a better chance of a deal being reached. Crunch talks will take place tomorrow in Brussels. 

EUR/USD is broadly flat on the day even though the US dollar index is up. The German ZEW economic sentiment reading for December was 55, and that comfortably topped the 45.5 forecasts. Keep in mind the November reading was 39, so it seems there was a decent rebound in activity.      

Commodities

Gold's rebound continues as it seems that the subdued mood in global equities has encouraged traders to buy into the metal, seeing as it is relatively cheap – just over one week ago it dropped to a level last seen over four months ago.

WTI and Brent crude are experiencing low volatility as there has been little macroeconomic news to encourage traders to get off the fence. The oil market, is subdued like the rest of the markets. It seems there is a little profit taking going on from the nine month highs that were set on Friday.