Good morning everyone,
We have a general election here in the UK tomorrow. Yesterday, the incumbent Conservatives received a boost when Lord Sugar, the host of The Apprentice in the UK (a role President Trump himself carried out across the pond!) publicly called for Labour voters to back Boris Johnson’s Conservatives in the election. Former Labour peer Lord Sugar feels this is the only way to see current party leader and staunch socialist, Jeremy Corbyn resign and see a more “sensible person” take the helm. Lord Sugar has blasted Corbyn’s spending plans saying they will plunge the country into economic chaos, adding that voting Conservative is the only way to get Brexit done and lift the uncertainty that looms over UK business.
No matter which way the chips end up falling, expect big volatility overnight in GBP currency pairs and a choppy open for the FTSE100 and UK stocks. On the whole, the market would prefer a Conservative majority and could see a rally in UK shares. However, a hung parliament or a shock Labour victory would see uncertainty prevail and open up a whole new can of worms.
The world’s biggest IPO opened for trading today and has hit the upward limit of 10% set by the Saudi exchange. The listing comes after a protracted IPO process that hit several stumbling blocks along the way and actually ended up being a lot smaller than initially anticipated.
In stocks, two of America’s oil giants hit the headlines on Tuesday. Chevron announced that it is writing down the value of its assets by between $10bn and $11bn this quarter and considering selling some of its natural gas projects in anticipation of long-term low prices. Fossil fuel companies are still feeling the impact of the 2014 to 2016 oil price crash, with some projects struggling to turn a profit. The firm’s share price closed up 0.5% on Tuesday, but it released the new information after the market close, so it will be one to watch in the morning. Also on Tuesday, Exxon Mobil received a favorable ruling in a lawsuit alleging the firm defrauded investors by covering up the cost of climate change regulation. A judge in the Manhattan Supreme Court found that the case made failed to provide evidence investors were led astray.
AutoZone leads the way on a quiet day
US markets were relatively flat on Tuesday, closing down a fraction, ahead of a Federal Reserve decision on interest rates due Wednesday and absent any major trade deal news. The Fed is widely expected to take no action, especially following strong jobs numbers posted on Friday. In individual stocks, AutoZone – whose earnings we previewed yesterday – was the big winner in the S&P 500. Its shares climbed 6.9%, closing in on a $30bn valuation after beating Wall Street’s expectations with its quarterly results. The firm posted an earnings per share figure that was 4% ahead of consensus expectations. AutoZone’s rising tide appears to have lifted more than just itself, as rival Advance Auto Parts also jumped 3% on Tuesday. At the bottom end of the pile, Franklin Resources (the holding company of asset manager Franklin Templeton) lost 4.4% after announcing net asset outflows in November.
S&P 500: -0.11% Tuesday, +24.96% YTD
Dow Jones Industrial Average: -0.1% Tuesday, +19.52% YTD
Nasdaq Composite: -0.07%, +29.85% YTD
UK stocks recover after morning stumble
The FTSE 100 fell hard on Tuesday morning as the election looms – down more than 1.3% at its low point. An afternoon rally pulled things back however, bringing the index within touching distance of its Monday close. There were no standout performers with Hikma Pharmaceuticals and GlaxoSmithKline the only firms to climb more than 1%. Bringing up the rear, Ashtead Group, Rolls Royce and Morrison Supermarkets closed 6.2%, 3.3% and 3.3% down. Despite increasing its dividend, industrial equipment rental firm, Ashtead, fell after reporting a profit drop in its quarterly earnings. Finance director Michael Pratt said on the earnings call that a quieter hurricane season this year had weighed on the firm’s US operations. The FTSE 250 posted a bigger loss than its large cap counterpart on Tuesday, falling by 0.68%. Tullow Oil gained back a fraction of what it lost on Monday after a disastrous set of updates sent its share price crashing, while Stagecoach Group and Card Factory both took a beating.
FTSE 100: -0.28% Tuesday, +7.22% YTD
FTSE 250: -0.68% Tuesday, +18.74% YTD
What to watch
Lululemon Athletica: Over the past two years athletic clothing retailer Lululemon has ridden the athleisure-wear wave – which it is often credited with starting – to a 200% plus share price gain and a $30bn market cap. The company reports its Q3 earnings after US markets close on Wednesday. Analysts have said that the path taken by Nike sets out a roadmap for the company’s future, which would involve the success of projects such as growing its menswear offering, expanding overseas, and finding ways to appeal to new customer bases. The average 12-month analyst price target on the stock is in line with its $229 Tuesday close, with the range from $169 to $275.
Dixons Carphone (DC.L): Electronics retailer Dixons Carphone, whose brands include Currys PC World and Carphone Warehouse, has been on the receiving end of major headwinds for years. The shift in favour of online shopping and the fact that consumers are now keeping their smartphones for longer are two major ones, impacting the group. Its share price has been on a downward slope since the beginning of 2016, over which period it has lost more than 75% of its market value. In a choppy 2019, it has eked out a gain of 8%. The company gave a profit warning earlier this year, so investors will be on the lookout for further bad news, plus sales data from Black Friday, when the company reports earnings on Thursday.
Fed rate decision, consumer inflation: The Federal Reserve is expected to keep interest rates unchanged on Wednesday following three rate cuts this year, but the comments around the outlook will be key. Investors will be watching closely to see if anything new comes out on the economic forecasting front given the strong jobs report last week. In addition to the rate decision, November consumer price index figures from the Labor Department will be released. Last month, the CPI climbed 0.4%, its largest gain in more than six months, and investors will be looking for any sign that inflation is starting to rise against the backdrop of the trade war.
All three major crypto assets were saw muted trading overnight with prices remaining relatively static. Bitcoin was off marginally, down 0.3% at $7,185, whilst Ethereum was up 0.26% at $144, and Ripple was ahead just 0.05% at $0.218.
As we near the end of the year, new ways to access crypto assets are bringing the currency further into the mainstream investment world. Overnight it was announced that asset manager IDEG Investments has launched Asia’s first-ever Bitcoin trust for professional investors.
ECB to discuss digital Euro ahead of rate decision
It is reported that ECB policy makers will today discuss the prospect of a digital Euro. As she prepares for her first rate decision meeting and statement on Thursday, ECB president, Christine Lagarde has long argued that the issuance of Central Bank Digital Currencies (CBDCs) can have a positive influence in terms of financial inclusion and consumer protection.
We have recently mentioned similar moves from the likes of France and China, it seems more and more institutions are either developing or becoming more open to the idea of CBDCs which can only be a good thing for the cryptoassets as a whole.
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