Europe

After a rather lackluster start to the week yesterday, markets in Europe have kicked on with the FTSE100 breaking above yesterday’s peaks and putting in another 20-month high, as it looks to close the gap on the underperformance seen post-pandemic to its European peers and head back towards the 7,500 level, as well as last year’s peak up at 7,689.

Once again, it’s been better than expected company trading updates that have helped drive the moves higher. Helping to lead the way we’ve seen decent numbers from the likes of Whitbread and Reckitt Benckiser who are leading the UK market higher.

It’s been a tough couple of years for Whitbread as it wrestles with the cash flow problems posed by the pandemic. In Q1 the company said that total like for like sales was down 70.9%, compared to FY2020, with UK accommodation sales at Premier Inn down 60.9%.

Today’s H1 FY2022 update has seen a significant improvement as the UK economy unlocked post 17th May, pulling in revenue of £661.6m as UK accommodation sales improved to being down 9.6% vs FY2020, while August bookings were up 10.5%, and 9.7% in September. While a decent improvement on last year's levels, revenues were still down 39% from where they were pre-pandemic.

Occupancy rates in Germany also improved to over 60% in August and September.

Losses for the period improved to £19.3m, compared to £724.7m a year ago, with management saying that the business was on course to reach full recovery on a RevPAR basis by the end of the fiscal year.

It’s also been a good day for the Reckitt Benckiser share price after posting better than expected numbers for Q3. Back in July, the shares slumped sharply after the company warned that accelerating cost inflation would cut its margins by 260bps to 21.6% and that these higher costs would weigh on margins over the rest of the fiscal year, before improving to between 22.7% to 23.2% by year-end.

Today’s Q3 trading update showed that group net revenues rose by 3.3% on a like-for-like basis, pushing revenue year to date up to £9.87bn. This equates to a fall of 5.3% year on year, however, this decline can be explained by the disposal of its IFCN China business, and the Scholl brand.

On a like-for-like basis 9-month revenues saw a rise of 3.6%, showing that like its peers, Unilever and Procter and Gamble, it has been able to pass on price increases to its customers without adversely affecting sales.

Reckitt said it now expects to see like revenue rise between 1-3%, up from 0-2%, and says it remains on course to meet its guidance of a margin improvement that it outlined in July, helping to push the shares further away from the 18-month lows they were trading at a week ago.

BT Group is also higher, ahead of its latest numbers next week, on reports that it is doing scenario planning for a potential takeover bid, by hiring advisory firm Robey Warshaw, in case major shareholder Altice, who bought a £2bn stake in June, decides to launch a formal offer once its time-limited commitment to refrain from doing so, expires in December.

On the downside, Entain shares have dropped after DraftKings said it wouldn’t be making a firm offer for the business, in the news that wasn’t altogether too surprising. The obstacles to a deal were formidable notwithstanding Entain’s relationship with MGM Resorts. It was always highly unlikely that MGM would give up its own designs on Entain, without extracting an even higher price than the existing $22.4bn. Today’s move by DraftKings appears to be a recognition of that, and they now won’t be able to make a renewed offer for six months.

US

Optimism over earnings saw the S&P500 and Dow both close at record highs yesterday, and open even higher today, as we look ahead to the release of numbers from Alphabet, Microsoft, and Twitter after the closing bell.

The latest economic data showed signs of picking up in September, with new home sales rising 14%, while October consumer confidence also rebounded after hitting 6-month lows in September.

Facebook reported a mixed set of Q3 numbers, after the bell last night beating on profits, but missing slightly on revenues, while downgrading revenue guidance for Q4 to between $31.5bn to $34.5bn, from $34.8bn. The shares initially dipped after hours; however, the blow was softened by the announcement of a $50bn share buyback, with the shares rebounding strongly.

Tesla, which surged through the $1,000 a share level after the announcement of its $4.2bn order of 100k cars from Hertz has seen its share price continue to rise.

DraftKings shares have rebounded strongly after they walked away from their $22.4bn bid for UK betting company Entain.

FX

The US dollar has slipped back a touch after failing at the 94.00 level yesterday, with the more positive sentiment in markets prompting a little bit of weakness. The weaker Japanese yen is also feeding into that same narrative. On the upside, the Australian dollar is making decent headway, as it looks to retest its recent peaks, as well as the 200-day MA. The Kiwi and the pound are also higher, with the pound hitting its highest levels against the euro since February 2020, ahead of tomorrow’s UK budget which is due to get underway at 12:30BST, just after Prime Ministers Questions.

Commodities

Crude oil prices are showing little sign of retreating from their current highs, with OPEC+ seemingly comfortable with the idea of prices at current levels, against a backdrop of concerns that demand might slow if new restrictions get brought in over the winter months. OPEC+ are still on course to add another 400k barrels a day to output, at the beginning of November, as part of their plan to slowly add back the output cuts from last year.

Gold prices have once again flattered to deceive, briefly poking its head above the $1,800 level it has gone into full reverse, and this time we can’t even blame a weaker US dollar. The slide back below $1,800 merely serves to reinforce the fact that gold has been range trading between $1,720 and $1,830 for the last four months.

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