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Banks lead the gains as European markets get off to a flier

Having seen four weeks of declines, US markets enjoyed a decent rebound in Friday trading which should act as a tailwind for this week, particularly since we are coming to the end of the month and the quarter, when a lot of portfolio rebalancing tends to happen.

Friday’s rebound has seen Asia markets start the week off on a similarly positive note and this has translated into a similarly positive European open, which is being led by the banking sector, which last week saw the Stoxx600 banking index briefly post a marginal new 32 year low.

HSBC shares have received a decent boost as one of its largest shareholders Ping An raised its stake from 7.95% to 8%, pulling the shares off their 11-year London trading lows, seen at the end of last week. This has helped the rest of the sector enjoy a decent rebound, with Standard Chartered also sharply higher.  

The appointment of Manfred Knof, as the new Commerzbank CEO has created a few ripples in the German banking industry, given that he will be leaving as Deutsche Bank’s head of retail banking to take up the post. It would appear that the shareholders have decided to opt against going for an internal candidate to shakeup the bank which has struggled since the German government decided to take a 15% stake in the lender all the way back in 2009. While Knof has a decent pedigree, he is likely to have his work cut out given that a lot of Commerzbank’s problems are to do with the low profit margins in German retail banking, its high cost base, and the fact that German retail banking is overbanked.

The scramble for what could be the lucrative US betting market saw private equity company Apollo Management announce that they had approached William Hill with a takeover offer last week as they looked to muscle in on a deal between Caesars Entertainment, and the UK bookmaker where Caesars already have a 20% stake. Talks between Caesars and William Hill have been going on for most of September, where potential synergies could offer up to $700m in revenue in 2021.

Earlier in the month its US partner Caesars, signed a deal with ESPN which will carry betting ads for ESPN digital platforms to US states, where betting is legal. It would appear that the lengthy discussions prompted Apollo to chance their arm with a counterbid last week, and it appears to have prompted a response from Caesars this morning announcing that they would be making a possible cash offer of 272p a share, valuing the business at £2.9bn, and below Friday’s closing price of 312p. The 272p share price would still be a significant premium to when the talks were first announced back at the beginning of September. Whether this will prompt a counter offer from Apollo remains to be seen, however William Hill management have indicated they are likely to go with the Caesars offer.

Drinks company Diageo shares have moved sharply higher after the company issued a trading update ahead of their AGM. The company said that the US business is performing ahead of expectations, while the business in Europe, despite robust demand, due to pubs and restaurants starting to re-open, remains at risk due to a rise in infection rates. Its emerging markets recovery is less robust and is likely to take more time, but the company said its outlook for the first half of 2021 has improved since the year end.

The constant procrastination over a £2.5bn rights issue continues to batter Rolls-Royce share price, as speculation over a deep discount prompts further weakness. More stories in the weekend press after last week’s reports that the Kuwait Investment Office was interested in taking a stake have seen the share price take another dive amid speculation that the issue could be priced at £1 a share.

On the currencies front the US dollar has shown little signs of slipping back from last week’s two-month highs, despite a more resilient tone in equity markets. Sentiment around the euro still feels like it has the consistency of a soggy blancmange, with ECB officials continue to differ on what possible next steps might be in respect of further stimulus. While the governing council appears to be leaning in the direction of further action, there are dissenting voices urging caution.

The pound is slightly firmer on reports of a more optimistic tone with the resumption this week of UK/EU trade talks.

US markets look set to build on Friday’s gains and the positive start to European trading with strong gains on the open. Much of Friday’s rebound has been put down to optimism over a $2.4trn stimulus package which could well be voted on this week. Hopes of a deal still appear to be based on hope rather than expectation, nonetheless markets appear content to grasp at any possible straw of optimism.

Friday’s rebound was primarily driven by the likes of Apple, Amazon, Facebook and Microsoft, with the tech sector posting its second-best day this month. On Friday a US judge issued a temporary injunction to halt President Trump’s ban on new downloads of TikTok, as the toing and froing continued on the next stage of the deal that involves Oracle and Walmart.

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