Market movers: Geopolitics, earnings and debates

Geopolitics continues to dominate the market this morning, and oil is higher by a further 1.6% as retaliation risks grow, after Iranian missiles struck the interior of Israel. Iran has extended a flight suspension until tomorrow morning, which suggests that it expects Israel to strike at some point today. US and UK forces helped Israel to deter the latest missile attack, however, this is still a very fluid situation. While this situation remains ongoing, we expect it to have the most impact on commodities, especially oil. Right now, US equities look the most exposed, because the US could get dragged further into the conflict as it has said that it will defend Israel. There are many other factors that could impact markets this week, but the escalation in geopolitical risks in the Middle East is a key downside risk.

No clear winner from US VP debate

The Hang Seng surged after its return from the October holiday, and FTSE 100 futures are also pointing to a stronger open. However, US futures are pointing to a weaker open later today. This could be down to the geopolitical tension, and the aftermath of the debate between the two US vice presidential candidates on Tuesday night. JD Vance and Tim Walz had a relatively civil encounter, that was less fiery than last month’s Presidential debate. Walz was the more nervous of the two, with Vance a more competent and slicker debater who could easily talk through policy points. However, he did not land a decisive blow on his opponent, and it was unclear if there was any overall winner.  

The VP debate was most likely the last major set piece before next month’s US Presidential election. Thus, it was possibly the last time that the Democrats and the Republicans had to frame their policies to the nation. Rather than attack each other, the attacks were focused on their running mates. While both men had significant differences on key areas such as climate change and abortion, they did agree on some policy points such as the need to stop illegal border crossings into the US and promoting affordable housing. VP debates don’t usually win or lose presidential elections, and we imagine that this debate will be forgotten about in the coming days. However, with no clear winner, it could raise fears that the election will be too close to call on 5th November, and there may be no clear winner from this election. The latest polls from RealClearPolitics predicts that Harris will win 49.3% of the vote, with Trump at 47.3%. Harris’s win is currently within the margin of error, which suggests that anything could happen on election day.

Barclays knocks the shine off European banks

Elsewhere, UK and European stocks are also being driven by domestic factors. Barclays have cut their position on European banks to market weight, from overweight, suggesting that they see a tougher landscape for banks from here. European banks have benefitted from net interest income generated by high interest rates. Now that the ECB is expected to cut rates rapidly over the coming months, this boost to banks’ bottom lines is getting eroded. The Eurostoxx banking index has backed away from recent highs, and it could come under further pressure in the coming days.

JD sports beats estimates and suggests consumer demand for sports fashion remains high

In the UK, JD Sports reported first half earnings that beat analyst estimates, and we expect the stock price to rise on the back of this report. The company announced pretax profit of £405.6mn, beating the estimate of £398.4mn, the gross profit margin was also a notch higher than expected at 48.2% vs. 48.1% expected. The company maintained its profit target for the full year between £955mn and £1.04 billion, the estimate was £981.4mn. The company also announced a higher interim dividend per share at 0.33p, vs, 0.30p a year ago. However, on the downside, the company reported that currency effects were hurting profits. The FX impact hit profit to the tune of £6mn in H1, however, this is expected to rise to £20mn for the full year. We will be watching to see whether or not the market will ignore the downside FX effects and instead focus on the potential upside to profits for this year and the larger dividend. However, these earnings suggest that UK consumer demand for sports fashion and trainers remains strong. The strong outlook from JD Sports also supports UK consumer strength through to the end of the year.

Apple in the doldrums

Apple is also worth watching later today, after it announced, it would start selling a new, cheaper iPhone. Its stock price fell yesterday on the back of news that Apple was scaling back the iPhone 16’s production due to weak demand. This, along with geopolitical risks, weighed on other mega cap tech stocks in the US. We will see if news that it is planning further phones and iPad models for release next year can halt this decline.