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Europe outperforms, sterling falls, Peloton pops

Europe outperforms, sterling falls, Peloton pops

Equity benchmarks are set to finish higher on the day, as traders have swooped in and snapped up relatively cheap stocks, with the mood a little more optimistic. 

The new strain of Covid-19 in circulation is still a major concern, but some of the fears have melted away today. The French government have signalled that they are looking to end the ban on UK freight entering the country and that has assisted sentiment. Yesterday’s headlines about the UK potentially being isolated have dropped off the radar and that has propped up British stocks.

Broadly speaking, today’s upward move is a reversal of yesterday’s very negative session, as banks, airlines, transport stocks and housebuilders are enjoying decent gains. IAG, the parent of BA and Aer Lingus, NatWest, Lloyds and Barclays are some of the biggest gainers on the FTSE 100. The dialling down of the health crisis has pushed Ocado into the red.    

DFS Furniture issued an upbeat trading statement. In the 24 weeks until mid-December, gross sales increased by 19%. The group anticipates that full-year profit before tax will be in the upper half of the guidance, subject to market conditions. DFS’s business has been partially impacted by the renewed health crisis, as tighter restrictions have forced the closure of showrooms in parts of England, Wales and the Netherlands. Some of the sales operations have been disrupted, but manufacturing and deliveries are still being carried out in parts of England that are under tough restrictions, so it’s not all bad with respect to the current environment.

In October, Weir Group announced it is planning on selling its oil and gas division to Caterpillar for $405m. The move would help free up cash for future investment opportunities and strengthen its balance sheet. This morning, Weir announced that the deal should complete in the first three months of 2021, as long as there are no regulatory issues.

Irish building materials supplier Grafton Group is to buy Proline, which is a leading distributor of architectural hardware based in Dublin. DIY activity has become very popular in 2020 on account of the lockdown, and the property market has been strong since it reopened as pent-up demand was released. Last month, Grafton announced the purchase of StairBox – the timber stair specialist – for £44m, so it is clearly bullish in its outlook.

Vodafone, which owns roughly 77% of Kable Deutschland, this morning offered the group €2.1bn for an additional 17.1% stake. SSE plans to sell off its UK gas exploration assets to Viaro Energy for £120m, as it wants to focus on its renewable assets and core networks.                    

US markets

The major indices are showing modest losses despite the fact that US lawmakers voted in favour of the $900bn coronavirus relief package and the $1.4trn government funding scheme. There has been a lot of talk about the stimulus package recently and it seems that the good news was already baked into US equities.

In the third quarter, the US economy grew by 33.4% and that was a slightly positive revision from the 33.1% in the second reading. Let’s not forget that the economy shrank by 31.4% in the second quarter though, so the latest quarter’s growth is encouraging.  

Peloton shares opened at a record high on the back of an acquisition story and broker upgrades. The company will acquire Precor for $420m and traders have reacted well to the news, at it will boost Peloton’s manufacturing capacity and market share. Keybanc, Telsey Advisory and Stifel have all lifted their price target for Peloton. Keybanc are the most bullish of the bunch, with a price target of $185.

Apple shares have hit a three-month high on the back of a report that it's pressing ahead with plans for self-driving car technology. It hopes to deliver the first batch in 2024. Tesla shares are still in focus after the stock was included in the S&P 500 index yesterday.        

FX update

In the third quarter, the UK economy grew by 16%, and that was an improvement on the 15.5% flash reading. The British economy contracted by 19.8% in the second quarter so today’s news is welcomed that the economy is rebounding. Public sector net borrowing last month was £30.83bn and that was a big increase on the £20.9bn registered in October. England was locked down last month and the cost of the pandemic is weighing on public finances. That being said, traders are more concerned about the UK-EU trade talks and the isolation of the UK. The CMC GBP index is in the red as British-EU trade discussions haven’t progressed. Andy Haldane, the Bank of England’s chief economist, said the UK economy is still in a hole and that the hole is deep, but he is hoping there will be a rapid bounce in the wake of a vaccine rollout.    

The German GfK consumer sentiment reading for December fell from -6.8 in November to -7.3 in December – its lowest reading in six months. In light of the extended lockdown in Germany it is not surprising that consumer confidence has weakened. EUR/USD is in the red because of the move higher in the US dollar.          

Commodities latest

Gold is in the red due to the positive move in the greenback. Yesterday, the metal saw a lot of volatility and at one point it hit a six week high. Gold is more subdued today and it had traded in a relatively small range.  

WTI and Brent crude oil are down over 1% as sentiment in the energy market is weak because of fears for demand on account of renewed health worries. Oil was hammered yesterday as there was a broad sell off due to isolation fears surrounding the UK, and lingering concerns that other countries might be struggling with the new Covid-19 strain soon too.         

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