It’s been another disappointing session for the FTSE 100, once again finding itself undermined by several disappointing company earnings reports, and a rather hot October UK inflation report, which saw CPI hit its highest level in over a decade, while the retail price index hit its highest level in over 30 years.
Europe
The biggest fallers are all companies that appear to have underwhelmed investors with their latest trading updates. While the FTSE 100 and FTSE 250 have both slipped back, the DAX and CAC 40 have continued to look resilient with more record highs, although the afternoon session is looking increasingly lacklustre.
SSE shares have slipped to the bottom of the FTSE 100, despite reporting a 30% rise in pre-tax profits of £174.2m. The company also announced an investment of £12.5bn in renewables, funded by the sale of a 25% stake in its electricity grid assets, which it plans to use over the next 5 years.
The company has been under pressure from activist investor Elliott Investment to spin off its renewables business to improve value to shareholders, however management have pushed back on that, saying that there needs to be an element of crossover between the businesses. This may well have prompted some disappointment, in what could be construed as a halfway house process.
Spirax Sarco shares are also lower after revising down its full year IP forecasts of 8.6% to 7.4% due to supply chain disruptions. The company maintained its full year guidance saying that it still expected to generate record revenues, profits, and operating margin for 2021.
Informa shares are also on the slide despite reconfirming its full year guidance of £1.8bn in revenue, while confirming that it would be divesting its Asset Intelligence and Barbour ABI brands.
After seeing a decent uplift yesterday and hitting a two-month high on some decent earnings numbers,Vodafone shares have gone into full reverse and back to where they were at the start of the week.
We’ve also seen weakness in housing stocks over concern about what a rate rise might do to the housing market, with Taylor Wimpey and Barratt Developments on the back foot, while consumer discretionary stocks like Tesco, Sainsbury and Next are struggling due to worries about pressure on margins.
On the plus side accounting software company Sage Group has seen its shares push up to two-year highs, despite reporting a 9% decline in full year EBITDA and fall in operating profits. Investors appear to be focussing on an increase in recurring revenues, which suggests that while margins have been under pressure, the worst may well be behind them.
Glencore is also higher after agreeing a deal with Evolution Mining to sell its Australian copper mine for $730m.
US
US markets opened modestly lower after yesterday’s strong finish, with the US dollar continuing to edge higher, and acting as a bit of a brake on further advances.
Interest in electric vehicle makers has continued today with Canoo shares rising for the second day in a row on expectations of an accelerated timeline to the production of its own electric vehicle. Lucid Groupis also generating plenty of interest given its recent strong gains, while Rivian’s momentum appears to have run out of steam, having seen its market cap exceed Volkswagen’s yesterday.
Visa shares are on the decline after Amazon said it would no longer accept payments from UK issued Visa cards for payments, from 19th January next year. Amazon cited the high fees Visa charges for card-based credit card transactions.
Target has followed in the footsteps of Walmart yesterday, beating expectations on revenues and profits in Q3. Revenues rose by 13.3% to $25.65bn, while profits came in at $3.03c a share. Same store sales also came in at a very healthy 12.7%, a decent increase on Q2’s 8.7%. Looking ahead to Q4 Target raised its guidance slightly on same store sales, however they did warn that costs were starting to rise, which has seen the shares slide back in early trade with some profit taking kicking in, having seen the shares hit record highs earlier this week.
FX
The pound received another lift today after UK CPI jumped by 1.1% in October to 4.2% and its highest level in almost 10 years. Retail prices also rose sharply, rising to 6%, and above their 2008 peaks to their highest levels in over 30 years, while PPI input prices rose to 13%, the highest levels in 13 years, which suggests that more price rises are coming down the line as we head towards year end.
Despite the big increase in headline CPI, UK 2 year and 5-year yields have slipped back a touch, perhaps on an expectation that while a December hike may well get done, subsequent rate rises might need a much higher bar.
Commodities
Crude oil prices have slipped sharply in anticipation of a possible SPR release by the US government to try and drive down petrol prices. The declines have been given added impetus by reports that there was a conversation about a joint release of reserves with China, according to a report in the South China Morning Post. Industry in China has been experiencing similar problems with rising energy prices, so the release of extra supply could be the catalyst that drives Brent prices back below $80 a barrel.
Copper prices are coming under pressure, hitting a one month low, largely due to a stronger US dollar.
Gold prices on the other hand, are edging back up again as softness in bond yields, and a little weakness in stock markets helps to underpin the yellow metal.
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