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Banks boost FTSE, Aurora Cannabis gets smoked

CMC Markets

The FTSE 100 hit a five-month high today as bullish sentiment on the back of a possible Covid-19 vaccine continues.

In London, property, banking and utility stocks are some of the biggest gainers. In the latest reporting season, UK banks set aside much smaller than expected amounts for bad debt provisions, and there was a feeling that the worst was over with respect to credit loss provisions. In light of the hope generated on the back of the potential coronavirus vaccine, traders are snapping up banking stocks because they feel the sector won’t be hit that hard after all.

The travel industry enjoyed a massive rally in the past two sessions, while it is mixed today. IAG and easyJet are up on the day, while TUI and Wizz Air are in the red. It is the same story with the hospitality sector, where Marstons is up slightly, while Mitchells & Butlers are offside.   

The betting sector was hit by the pandemic as the cancelation of sporting events took its toll on the business, but the gaming and poker divisions helped pick up the slack. The reopening of economies prompted the resumption of sporting events, which has helped the industry. Flutter Entertainment had a strong third quarter, as group revenue rose by 30%. The Australian business outperformed as the integration of easybet helped the division register a 76% rise in revenue. Paddy Power and SBG saw revenue increase by 32% and 26% respectively. Flutter upped its full-year earnings guidance Stripping out the US subsidiary, it now expects earnings to be in the region of £1.27 billion and £1.35 billion, while the previous forecast was £1.17-£1.32 billion. The group is keen to expand its relatively new business in the US, and therefore it upped its investment in new client acquisition, but that caused Flutter to lower its guidance for the US business.

McCarthy Stone, the housebuilder that specialises in the construction of retirement houses, released an end of year trading statement. Completions tumbled to 832, from 2,402 last year. The pandemic disrupted construction work, and that has been a common theme for housebuilders. McCarthy said the full-year underlying operating loss will be in line with forecasts. Restrictions and the health crisis are holding the company back again. McCarthy is at a disadvantage when compared with the rest of the homebuilders because its client base is a higher risk category when it comes to the coronavirus crisis, so it could struggle to keep up with the likes of Persimmon when it comes to share price performance.

BAE Systems posted a reasonably positive trading statement. It anticipates that underlying EPS will be marginally above previous expectations. The cash flow and revenue forecasts were kept unchanged. The interim dividend was left hold at 9.4p. BAE Systems confirmed that demand is robust, and that orders ahead of the pre-pandemic level. Even though uncertainty still exists in relation to the pandemic, it seems that BAE is in as good a position as one can be when you take into account the current climate.

JD Wetherspoon confirmed that like-for-like sales in the 15 weeks until 8 November dropped by 27.6%. The one month closure of pubs will cause a cash burn of £14 million, the firm cautioned. 

US

Once again, the mood is mixed in the US as the S&P 500 and NASDAQ 100 have rebounded from recent weakness, while the Dow Jones and the Russell 2000 are offside because of profit taking. Traditional stocks like oil, mining, construction, retail and banking have the most to gain from a vaccine, while tech stocks would probably suffer a little.     

Lyft Inc revealed its third-quarter numbers last night and they showed that business is bouncing back. The number of active riders surged by 44% on the quarter to 12.5 million. Revenue increased by 47% to $499.7 million, which topped the $486.6 million estimates. The net loss for the three-month period was $460 million, which was worse than the $437 million lost posted in the second quarter. The company is aiming to post a positive EBITDA in the fourth quarter of 2021, even if the recovery from the pandemic is slow.

Alibaba shares have lost a little ground as the Chinese regulator suggested that it might its tighten rules with respect to online companies. The e-commerce titan saw its Hong Kong-listed shares fall on the back of fears about stricter rules. The retailer enjoyed a record Singles Day in terms of sales, the $56.42 billion mark surpassed.   

Cannabis stocks are lower this afternoon as they seem to be handing back some of the post-Biden victory gains. Some traders took the view that further states would legalise cannabis sales in the wake of the US election, but that is not a foregone conclusion. Aurora Cannabis revealed plans to raise $150 million from a stock offering, and that weighed on the share price.

FX

The US dollar is building on its recent gains. When Pfizer and BioNTech announced the success of their potential coronavirus vaccine on Monday, the greenback initially declined as traders rotated out of assets that are deemed to be lower risk and ploughed their funds into riskier assets, such as stocks and commodities. When the dust settles, the dollar started to rally as dealers took the view that if the vaccine pandemic is tackled, the Federal Reserve is likely to pullback on the extremely aggressive policy of monetary easing.

It has been a quiet day in terms of economic announcements and the bullish move in the US dollar hit EUR/USD and GBP/USD. There is talk the UK-EU trade discussions will not result in a deal by mid-November as planned. Sterling is a little higher versus the euro all the same. The talks have been protracted, so many are not surprised by the chatter that the deadline will be missed.

Commodities

Once again the firmer US dollar has put pressure on gold. The inverse relationship between the metal and the currency has been strong lately, and that is playing out today. On Monday, the asset fell to its lowest level since late September, and a break below $1,848 could pave the way for $1,800 to be tested.

WTI and Brent crude are up on the day because of the generally bullish sentiment that is doing the rounds with respect to the Covid-19 drug. Last month, the energy market sold off because of the concerns about the pandemic and lockdowns, and now we are seeing a reversal of that bearish move.