European equity markets are deep in the red this afternoon as the continued weakness in US markets and the rise in tensions between the Trump administration and China has hurt confidence.
Stocks in Europe had free rein yesterday as the US exchanges remained closed because it was Labour Day. The weakness that we saw in big US tech names last week, is still in play, and that is driving sentiment over here.
The FTSE 100 hasn’t lost as much ground as the indices in mainland Europe thanks to the fall in the pound. Sterling is under pressure again over worries a trade agreement between the UK and the EU will not be agreed upon by mid-October, and that could pave the way for WTO trading rules come 2021. Sterling’s fall has given a little help to the likes of Diageo, Imperial Brands and Ashtead as they all earn a large portion of their revenue outside of the UK, so a softer pound helps them.
President Trump has suggested ‘decoupling’ from China as a way of reducing the US’s dependency on the country. It wasn’t a full-on attack on the nation, but it adds to the frosty relations that have been brewing in recent months, which is a factor in the wider bearish sentiment seen today.
JD Sports shares jumped to a level last seen in late February after it reinstated its dividend. The company declared that it expects to make at least £265 million in pre-tax profit. Retailers across the board have been hit by the pandemic, but the profit guidance from JD sends out a positive message from the company, and traders have latched onto that. Revenue in the first half slipped by 6.5% to £2.54 billion, and underlying pre-tax profit slumped from £158.6 million to £61.9 million. The retailer ramped up spending in relation to its online business, and that’s why earnings fell. The last six months showed us that companies that have a strong online presence have held up better than their competitors that are heavily weighted to the high street. The expenditure with respect to the e-commerce business should benefit the company in the long run. When stores reopened, there was a release of pent-up demand, especially in regions where online shopping isn’t mature.
EasyJet shares are in the red as the airline announced that it expects the capacity in the fourth quarter to be slightly lower than the 40% it previously predicted. The downgrade to the outlook isn’t a huge shock given the uncertainty surrounding the pandemic and government-imposed quarantines. There has been talk that Covid-19 cases are likely to rise in winter, and the travel sector is likely to remain under pressure in the months ahead. At the beginning of the month, Wizz Air lowered its capacity guidance for October to December to 60% from 80% – it is likely that other airlines will do the same.
Halfords offer motoring services and they are a specialist in bicycles too. On account of the lockdown and the rise in people holidaying at home, the group saw a surge in bike sales. In the 20 week period, total sales increased by 5% on a like-for-like (LFL) basis. Bike sales surged by 59.1% in the time frame. Services-related sales rose by 6.3%. The stellar performance in recent months prompted the company to confirm, that it is on track to deliver a gross margin of 300 basis points at its cycling division this year. In early trading, the stock price hit a three month high, but now it is in the red. The group cautioned about uncertainty in the second half as cycling revenue is likely to taper-off. The stock pirce has been trending higher since late July, but if it can’t retest its 2020 high with figures like these, when will it?
DS Smith issued a short and sweet update that covered the time period from 1 May until now. The packaging group said it intends to declare an interim dividend on the back of its recent strong trading performance. The stock is up 7%.
Royal Mail Group shares have surged as the company said it expects its yearly revenue to increase by £75-£150 million as the surge in online shopping has ramped up parcel deliveries.
US tech stocks are in the red for the third day in a row. The tech titans such as Facebook, Amazon, Apple and Microsoft all saw huge rallies between late March and last week, but since Thursday, the mood has been sour, and the selling pressure has intensified. The strained tensions between Washington DC and Beijing are playing into the mix also.
Tesla shares have tumbled. After the close of trading on Friday it was announced the stock would not be admitted to the S&P 500 – there was speculation that it was going to be included in the popular index. The stock was already under pressure at the back end of last week, so the S&P…
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