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European stocks slip back slightly as investors pause for breath

European stocks slip back slightly as investors pause for breath

Having posted new record highs earlier this week, US markets indulged in some pre-Thanksgiving profit-taking yesterday, after some weaker-than-expected economic data that suggested recent improvements in the labour market had more or less come to an end. It was notable however that the Nasdaq finished the day higher.

A rise in weekly jobless claims for the second week in succession, to a one-month high of 778,000, appears to have all the hallmarks of a US economy that is starting to rollover again after several months of modest improvements. This modest weakness in US stocks doesn’t appear to have manifested itself in Asia trading, however we are starting to see a little bit of profit-taking in today’s European session, despite a modestly positive open, in what is likely to be a fairly quiet European day with most US traders enjoying a long Thanksgiving weekend break.

Markets appear to have taken the decision by German chancellor Angela Merkel to extend the German lockdown until 20 December, due to surging Covid-19 cases, largely in its stride, however the decision by the German government to go down this road suggests that the coming winter is likely to be a long hard slog for businesses all over Europe, as populations tire of having their freedoms restricted, and concerns grow about the prospect of much longer-term economic damage.  

Financial and energy stocks have seen some early weakness as profit-taking starts to kick in after the gains of recent days, with Lloyds Banking Group, Virgin Money and BP all lower. Businesses here in the UK are also on tenterhooks as the government gets set to unveil the new tiering levels for England in the wake of the easing of lockdown measures next week.

Earlier this week, Aviva announced the sale of its stake in its joint venture Italian business, Aviva Vita, to its Italian partner UBI Banca for €400m. This followed the decision in September to pare down its majority shareholding in its Singapore business for £1.6bn, to Singlife and a consortium of other buyers, though Aviva still retains a 25% stake. The sale of the Hong Kong business is set to complete by the end of this year, with the option to offload their other joint ventures in France, Poland and Italy still under consideration.

This decision is part of a new policy by new CEO Amanda Blanc to focus more exclusively on its core markets of UK, Ireland and Canada, as it looks to boost its capital position in the face of a tougher market and rising claims. In the first half these rose by £165m, while the firm’s asset management arm Aviva Investors took a sizable hit as profits fell over 40% to £35m. Today’s Q3 numbers have seen an improvement with the rebound in markets since the summer helping to see £1.2bn of net inflows from the UK and North America. There was a similar improvement in other areas of the business as well, with UK and Ireland Life new business sales up 40%, while claims fell to £100m. An interim dividend of 7p a share was announced, with the intention to pay a final dividend of 14p a share, when the full-year results are unveiled in March 2021.

The closure of pubs doesn’t appear to have taken its toll on Britvic’s full-year profits, even though revenues slid by 8.6% to £1.41bn. Profits-after-tax rose by 16.9% to £94.6m, helped in the most part by a £50m reduction in admin expenses. The damage to the pubs sector caused by the pandemic is perfectly encapsulated in All Bar One owner, Mitchells & Butlers' annual results, as revenues fell 34.1% to £1.48bn, with the business posting a loss of £123m. Despite government help, the company has had to make 1,300 redundancies as a result of closing some sites and the continued uncertainty, as management declined to offer any guidance.  

The US dollar has continued to come under pressure trading just above its September lows against a basket of currencies, with the euro hitting its highest level since September. The recent sell-off in gold prices appears to have found a modicum of support at the 200-day MA and $1,800 an ounce level. This is a key support area in terms of the recent uptrend, with the weak US dollar helping to arrest the recent slide. Last night's Fed minutes revealed little in the way of new information about the central bank's future intentions, other than the FOMC was still concerned about future economic damage from Covid-19, and that Fed officials wanted to be able to finesse their messaging about future changes in policy more effectively. US markets are closed today for Thanksgiving