News

Lacklustre end to volatile week, Kandi spins out

CMC Markets

Stock markets are showing modest gains as we approach the end of the day. 

Europe

It has been a lacklustre session when compared with the volatility witnessed in the first half of the week. On Wednesday, Pfizer-BioNTech announced their potential Covid-19 vaccine was 95% effective and today the companies confirmed they are seeking emergency approval from the Food and Drug Administration (FDA) – the US regulator. In light of the vaccine stories, it feels like stocks could be in limbo for a while until we find out about the vaccine situation - in either direction. Seeing as a lot of progress has been made with respect to coronavirus drugs, it seems like a floor has been put in place under equity benchmarks now, but that could all change should the drug story get derailed.      

Sage Group shares have endured a relatively large sell off when you take into consideration the mixed full year update. Total organic revenue ticked up by 3.7% to £1.76 billion. The company’s investment in cloud computing ate into profit margins slightly and that appears to have sparked the fall in the share price. Organic profit margin slipped by 1.7 points to 22.1%, and that caused operating profit to dip by 3.7% to £391 million. Cloud services are extremely popular these days and the likes of Amazon and Microsoft have seen a big rise in demand. Sage’s strategy should pay off in the medium to long term. The company anticipates that full year revenue for next year to increase by 3-5%, and the bulk of the growth will be in the second half.

Smurfit Kappa Group PLC GB raised roughly €660 million from an equity raising. The move was announced yesterday after the close of trading and so that’s why the stock is in the red today. Smurfit is a packaging specialist and the surge in online shopping because of the health crisis has been a huge benefit for the company. In an indirect way Smurfit cashed in on the e-commerce boom, and that was reflected in the share price as it hit an all-time high on Wednesday. It is not a coincidence, the stock set an all-time high on Wednesday, and then it carried out stock issuance.               

US

The S&P 500 is a little lower today but it had made big gains earlier in the week due to coronavirus drug hopes. Yesterday, the US Treasury Secretary, Steven Mnuchin, said we would allow the special lending capabilities of the Fed to expire at the end of December. This caused a little concern as traders are taking it as a sign that the support network for the economy is being eroded.  Mr Mnuchin clarified his comments today by confirming there still is a lot of fire power at the ready if funding needs to be dished out. Stimulus talks are back in focus and that is likely to be in the news in the near-term as Democrats and Republicans bicker over the scale of the much needed relief scheme.     

Williams Sonoma Inc shares are in demand following the posting of their third quarter numbers last night. EPS came in at 86 cents and that easily topped the 67 cents that equity analysts were expecting. Net revenue jumped by 24.4% to $1.76 billion, topping the $1.6 billion consensus estimate. The household goods and furniture retailer resumed its shares buyback scheme, and it purchased $109 million of its own stock. Admittedly, the size of the stock purchase isn’t huge, but it projects a positive image as it indicates the group feels it is over the worst of the economic uncertainty. 

Foot Locker Inc delivered respectable third quarter numbers. The same store sales metric showed 7.7% growth, and that hammered the -1.2% that analysts were predicting. EPS was $1.2, and once again it smashed the 63 cents consensus estimate. Gross margins cooled by 120 basis points to 30.9%, and keep in mind the consensus estimate was 28.7%.

Kandi Technologies Group Inc, the electric vehicle manufacturer, registered for a direct placement of $100 million. The stock has been on a very bullish run recently and it seems the group is taking advantage of the rally by raising cash.                  

FX

USD/CAD is a little lower on the day as the US dollar has been muted, and the well-received Canadian sales data impacted the currency pair too. The Canadian retail sales report for October showed 1.1% growth, and that was an improvement on the 0.4% posted in September. The report that strips out auto sales showed 1% growth.

In a similar fashion GBP/USD is up on the session due to the solid retail sales update. The report for last month showed growth of 1.2% while economists had predicted 0.0%. As always, the UK-EU trade situation is in focus. Ursula von der Leyen, the head of the EU commission, said that progress has been made in the negotiations but differences still exist.             

Commodities

Gold is up after falling for three sessions in a row. The absence of volatility in the US dollar has helped the metal – lately the inverse relationship between the two markets has been strong. In the past two weeks the commodity has been broadly range bound hovering between $1,900 and $1,850.

WTI and Brent crude haven’t much moved today as the wider sentiment has been muted. The two oil contracts are not that far away from the highs of the week, which were achieved on the back of the optimism surrounding the vaccine hopes. There continues to be speculation that OPEC+ will maintain their current production plan into next year, rather than easing up the output cuts.