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News

Europe underperforms against US, Levi’s back in fashion

CMC Markets

Stocks are mixed as we approach the close of trading. 

Europe

Dealers in this part of the world are a little downbeat on the back of yesterday’s news that President Trump announced an end to the negotiations in relation to the coronavirus relief package. Today, the US leader called on politicians to push for a unique bailout for the airline industry. The overall stimulus discussions will recommence after the presidential election but there was talk that Republicans and Democrats might work together on individual areas that they agree upon, so it is possible we could see a mini-version of a stimulus programme.       

Tesco shares are in the red but they were is positive territory for much of the session. The supermarket group released its first half numbers this morning and traders latched on to the fact the interim dividend was lifted by 20% to 3.2p. In the current climate, a rise in the pay-out is generally well-received as it makes the stock more attractive to investors seeking an income. In the six month period, group sales increased by 6.6% to £26.7 billion. The operating profit before exceptional items dropped by over 15% to £1.037 billion, but the company predicts that the annual metric should be around the same level as last year’s reading. Like-for-like sales in the UK increased by 7.6%, and keep in mind that the first quarter reading was 8.7%, and things have cooled from the days at the earlier stages of the pandemic. The health crisis worked for and against Tesco, as the jump in volumes in the UK and Ireland and the relief on business rates, offset the higher costs associated with the health emergency. Tesco’s banking division weighed on the group. Lower income and a jump in bad debt provisions led to the subsidiary posting an operating loss of £155 million.

Barclays issued an ‘overweighting’ rating for Hunting – the company that supplies the oil and gas sector. The finance house has a price target of 260p for the group. Keep in mind that Hunting shares are trading at 150p, so Barclays are clearly very bullish on the stock.

Tullow Oil shares are now in the red but they started out strong on the back of the news that it still has access to $500 million of its $1.8 billion credit facility. Yesterday, the stock moved higher on the back of the news that Premier Oil will merge with Chrysaor. Tullow’s share price has been hammered in recent months due to the turbulence in the underlying oil market. In a previous era, there might have been speculation about a takeover bid for Tullow, but nowadays the major oil players are keen to trim their exposure to fossil fuels.           

US

The mood in the US is bullish as stocks have bounced back from the sell-off that was witnessed last night. It seems that traders might have overreacted to the update from Mr Trump yesterday that the discussions for the proposed stimulus package will be pushed back until after the election. The fact that Mr Trump is driving for a rescue package for the airline sector suggests that he is keen to assist the economy, but it might be the case the certain industries get assistance on an individual basis, rather than one grand plan that covers all aspect of the package.       

Levi Strauss Co shares are in fashion on the back of the quarterly update that was posted last night. Revenue fell by 27% to $1.06 billion, but that comfortably topped the $822.2 million that equity analysts were predicting. In the three month period, EPS was 8 cents, and that hammered the consensus estimate -22 cents. Online sale surged by over 50% as the company’s customer base is clearly embracing e-commerce. It is encouraging to see that Levi’s can cope with that level of digital sales. The clothing company plans to resume paying a dividend in 2021, and that sends out a positive image. 

United Continental Holdings Inc, South West Air, Delta Air Lines Inc and American Airlines Group Inc are all higher on the session as there was renewed calls for a standalone relief package for the airline sector. The industry has been one of the worst hit by the pandemic and the US leader called for a $25 billion package to provide assistance. 

FX

The US dollar index is in the red on account of the upbeat sentiment in US stocks. The fact that dealers are willing to take on more risk and buy up US stocks has put pressure on the greenback – the currency has been a popular destination for safe haven assets in recent months. In early September, the dollar started pushing higher and even though it is lower today, the broad trend of the last few weeks is still upward. GBP/USD and EUR/USD have been given a lift because of the weakness in the dollar.

The UK-EU discussions are still in focus and the UK’s Michael Gove, said there is cause for steady ‘optimism’ with respect to the negotiations. Mr Gove didn’t give too much away and essentially said that no deal is still preferable to a deal that wouldn’t be great for the UK.              

Commodities

Gold’s inverse relationship with the US dollar is working in the metal’s favour today. Whereas, the asset was hit yesterday evening when the greenback rallied in the wake of the news that the US stimulus negotiations will be pushed back until after the election..

Oil is in the red after having a strong start to the week as the US stimulus news encouraged dealers to book recent profits. Brent crude and WTI are lower in the wake of the EIA report which showed that US oil inventories increased by 501,000 barrels, while the consensus estimate was for a build of 700,000 barrels.                  


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