FTSE 100 higher as DAX slips in new lockdown concerns

Europe

European markets have seen another mixed session with the DAX coming under pressure over concerns that the new German government, under new Chancellor Olaf Scholz, could be on the cusp of implementing another full-scale lockdown, in an attempt to stem the rise in hospitalisations which are rising sharply.

The FTSE100 is outperforming again, helped in part by the oil price hitting its highest levels in over a week, which in turn is underpinning BP and Shell.

Travel and leisure stocks which were down heavily at one point today, are starting to pull off their lows with plenty of movement in the likes of easyJet, IAG and Ryanair.

The best performer today is Intertek after the company announced that group revenues year to date had seen a rise of 5.6% to £2.28bn, the increase being driven from its products business, with trade and resources underperforming. The second half of the year is seeing a much stronger performance with management saying that the business is on track to meet its full year targets, with the four months from July seeing revenue gains of 6.7%.

Johnson Matthey this morning announced the sale of its Advanced Glass Technologies business for £178m, to Fenzi Holdings, a company that generated sales of £66m. We already got a flavour of today’s half year results a few weeks ago when the business issued a profits warning, as well as announcing its intention to sell its batteries business.

Full year revenues saw a 23% rise to £8.59bn, which was primarily driven by higher precious metals prices. Operating profits fell sharply from £68m to £20m, with the company taking a £314m impairment in respect of its intention to sell its batteries business, with the business booking a loss before tax of £9m.

Guidance was kept unchanged from the recent trading update. Consensus full year underlying profit is expected to come in at £581m, range of £550m to £636m, with the company at risk of falling out of the FTSE100.

Darktrace shares have continued to fall despite the company reaffirming year on year revenue growth of 41% in its latest AGM statement, as the tug of war between the bulls and bears continues as to what constitutes a credible valuation. Given recent declines there is a risk it could drop out of the FTSE100 only weeks after it entered the index.

US

Despite the late rally yesterday, US markets opened lower with the Nasdaq and tech shares leading the way, although we are pulling off the lows of the day, as we look towards the Thanksgiving holiday break.

Investors also had to absorb several other data announcements before the opening bell, in addition to weekly jobless claims, a Q3 GDP revision, which saw a modest upgrade from 2% to 2.1%, and disappointing October durable goods orders which saw a decline of 0.5%.

The standout numbers were the weekly jobless claims which came in at 199k, and the lowest levels since November 1969, however it is the inflation numbers that are particularly noteworthy given the increased discussion over an acceleration in the taper program due to concerns over rising prices. Core PCE Deflator for October rose to 4.1% as expected, while September was revised up to 3.7%.

Today’s economic numbers also serve to reinforce the recent narrative that the Federal Reserve is behind the curve when it comes to paring back stimulus, which in turn is pushing the US dollar higher.

US manufacturer of agricultural, forestry and heavy plant equipment Deere and Co has reported Q4 sales of $11.33bn, well above consensus, with profits coming in at $4.12c a share, also above expectations, shrugging off the impact of the recent strikes at its factories over pay. In August the company said it earned more in the first 9 months of this year than it earned in the whole of 2013, when it last reported a record year.

In respect of its 2022 outlook the company said it expects to generate net income of between $6.5bn and $7bn as demand for farm, construction and other equipment is expected to remain resilient. Management said that higher costs were likely to be a headwind but shouldn’t detract from expectations of another good year.

Both HP and Dell also reported quarterly earnings that beat expectations, with strong demand for servers and PC’s helping boost revenues for both.

On the downside Nordstrom and Gap have seen big declines after they both missed expectations on profits, while Gap cut its outlook.   

FX

The US dollar has continued its advance, with the US dollar index hitting its highest levels in over a year, with the euro sinking below 1.1200 and close to its June 2020 lows of 1.1168.

The New Zealand dollar is the worst performer after the RBNZ hiked rates by 0.25% but rather than setting the scene for further tightening adopted a much more dovish tone, than was originally being priced by markets.

Commodities

Crude oil prices are once again looking resilient, up for three days in a row, as the market absorbs yesterday’s announcement of an SPR release, ahead of next week’s OPEC+ meeting. There has been plenty of speculation that the moves by the US might prompt a counterresponse from OPEC+, however the amount of the reserves release seems to be more about politics than anything else. To be seen to be trying to do something by politicians for the benefit of their voters, than any prospect that it will make a discernible difference.

Gold has remained under pressure despite slightly softer yields; with the strength of the US dollar seemingly being the main drag today.