Europe

After yesterday’s big falls European markets have undergone a decent rebound today, as concerns over Evergrande’s fate get shifted to this week’s bond payments, and whether Chinese authorities will be able to manage any resulting fallout once the deadline has passed. There appears to be an acceptance that an Evergrande failure is more a matter of when and not if, and the real question is how any fallout is managed.

We’ve seen the FTSE100 retest the 7,000 level and seen similarly strong rebounds in the likes of the DAX and CAC40.

Amongst the bigger gainers today we’ve seen a fair degree of M&A, with sports betting provider, and owner of Corals and Ladbrokes, Entain surging on reports that US sports betting business DraftKings has made a $20bn bid for the business. This has prompted a similar rise in the likes of 888 Holdings and Flutter Entertainments. Entain confirmed that such a proposal had been made, but also said that there was no certainty an official bid would be made. DraftKings now has until 19th October to make an offer or withdraw its interest. It certainly seems an odd proposition given that Entain has a joint venture with MGM Resorts, which could prompt a counter proposal, however it is clear that DraftKings recognises Entain’s strong brand in the UK as well as its other 27 markets.

With the pandemic having such a negative effect on public transport due to various lockdowns it appears that National Express and Stagecoach have decided that it might be more efficient if they looked into a possible merger of their rail and bus services.

Under the terms of the merger Stagecoach shareholders would receive 0.36 new National Express shares for each Stagecoach share. The combined company would expect to see savings of around £35m over a three-year period, with 25% of those savings achieved in the first year alone. Both companies’ shares have risen sharply in the aftermath of this today’s announcement.

The successful flotation of Universal Music Group today in Amsterdam, has prompted a nice windfall for Pershing Square Holdings, which has a sizable stake in the business, and has seen its shares outperform the FTSE100 today.

IAG is also higher as a surge of demand for US flights has boosted optimism that the airline will be able to navigate its way to recovery without the need for a further capital raising, while airlines in Asia also had a good day, although easyJet and Ryanair have underperformed due to their more domestic focus.

Royal Dutch Shell shares have seen a boost after announcing the sale of their Permian Basin assets for $9.5bn to ConocoPhillips, with the company pledging to pay $7bn to shareholders, while using $2.5bn to reduce the size of its debt.

When Kingfisher reported back in May the company upgraded its guidance for H1 after a bumper Q1 performance, and then did so again in July raising like for like sales growth to 22% as well as raising its profit outlook to between £645m to £660m.

Today’s H1 numbers saw sales rise 22.2% to top £7.1bn, above expectations, while profits came in at £677m, also beating expectations, however that hasn’t been enough to stop the shares from slipping to the bottom of the FTSE100.

Today’s declines appear to be as a consequence of a slowdown in sales in Q2 and Q3.

Sales at B&Q fell back by 1.2%, in Q2, although this was more than offset by the 81.9% rise in Q1. Q3 sales to date have also been a little disappointing, down 4.2%, though this could improve.

The performance of Screwfix has continued to be decent and more consistent with growth on all three quarters so far. The French business had a disappointing Q2 with sales dipping by more than 8% and also down in Q3, although on a two-year basis the numbers are still good.

While there is evidence that sales growth is starting to slow, profit margins have improved, rising to 10.8%, from 9%, with the company increasing the dividend to 3.8p per share, and announcing a £300m share buyback program. Management did point to higher costs but for now they said that they have been manageable but expect these inflation pressures to persist in H2.

US

US markets have seen a decent rebound after yesterday’s losses, helped by the positive tone in Europe, and some better-than-expected housing starts and building permits data for August.

In a blow to the transitory inflation narrative of central bankers FedEx announced that it would be hiking shipping rates from next year by an average of 5.9%, across all of its businesses. At the end of its last fiscal year FedEx said that operating costs had risen 23% in Q4, so something had to give and with the company reporting Q1 numbers later today this appears to be a recognition that a tipping point has been reached as the company strives to address shortages of workers in key areas. Expectations are for Q1 profits to match those in Q4 at $5 a share, which seems optimistic given concerns about rising costs and a slowing US economy.

Uber has seen its shares rise sharply after announcing that it might actually turn a profit in Q3. In a regulatory filing today, the company said its target for Q3 was between a £25m loss and a £25m profit, which would be ahead of schedule and Q4.

DraftKings shares have slipped back on reports of their interest in Entain.

FX

Currencies have been mixed ahead of tomorrow’s Fed meeting with the US dollar broadly flat after retreating from yesterday’s peaks.

Today’s movements have been fragmented with no clear narrative, strength in the Norwegian Krone, but weakness in the Australian dollar, while the haven currencies of the Swiss Franc and Japanese yen are higher, despite share markets being very much on the up. 

Commodities

After two days of modest losses, crude oil prices have rebounded as a slightly weaker US dollar, and concern that OPEC+ may not be able to pump enough oil in the event of a demand pickup, helps to put a floor under prices. This appears to be down to a lack of investment in oil infrastructure over the last 18 months, due to the pandemic, which means some capacity lacks the flexibility to rebound as quickly as it is able.

The weakness in iron ore prices has remained, with copper prices also on the back foot, despite today’s more positive tone.

Having hit a one-month low yesterday before finishing higher, gold prices have continued to edge higher, on the back of a slightly softer US dollar, and ahead of tomorrows Fed meeting.

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