Stocks subdued, euro rises again, Nikola spins-out

Trading has been subdued in Europe as there has been an absence of major news. 

Europe

In the past week, traders in this part of the world took their cues from the US, in particular the tech sector, and seeing as that has calmed down, things have cooled-off here too. Broadly speaking it has been a positive week for European indices, but then again the FTSE was starting from a low base, and the DAX 30 hasn’t retested the highs of last week.

Traders are still monitoring the health crisis. Uncertainty in relation to the UK-EU trade relationship has increased and US lawmakers have yet to reach an agreement on the relief package.    

Ashmore, the emerging markets-focused fund manager, confirmed that full-year assets under management (AuM) slipped by 9% to $83.6 billion. The group pointed out that the pandemic had a major impact on the financial markets in the third quarter, and that pushed down the AuM metric. Ashmore said that annual adjusted net revenue increased by 5%. Profit before tax ticked up by 1% to £221.5 million. The final dividend was increased by 2% to 12.1p. It was a solid set of numbers from the finance house and the decline in volatility in the markets should help its business in the quarters ahead.  

JPMorgan increased its price target for Dunelm to 970p from 875p. Yesterday the retailer posted largely positive results so it is not exactly a surprise that the Wall Street bank upped its price target for the stock.

Morgan Stanley cut its price target for Cineworld to 45p from 60p, but traders have shrugged off the update as the stock is up on the session. 

Royal Mail Group shares hit their highest level since December thanks to the upgrade from JPMorgan who lifted its rating to neutral from underweight. The bank upped the price target to 253p from 145p. 

US

The major equity benchmarks are showing small gains. It seems that dealers are still a little nervous on account of the aggressive sell-offs that have been seen recently. The upward moves today are minor when compared with the losses registered last night, which suggests a certain level of caution.    

The headline CPI reading for August was 1.3%, up from 1% in July, and it topped the 1.2% forecast. The core metric nudged up from 1.6% to 1.7%. At the latest Federal Reserve meeting the inflation target was changed to an average of 2% from just 2%. The central bank are content for inflation to run over 2% for some time. The rise in CPI, especially the core report, points to higher demand.     

Peloton shares are up on the back of the well-received fourth quarter numbers that were posted last night. EPS was 27 cents which smashed the 10 cents consensus estimate. Revenue surged by 172% to $607 million and that topped the $582.5 million forecast. The company benefitted greatly from the lockdowns as people purchased its treadmills and spinning bikes as gyms were forced to close. Paid subscribers more than doubled to 1.09 million. Going into the update last night, some traders were wondering if Peloton might issue a more measured forecast because now that gyms have reopened again, it would be difficult to keep up with the impressive growth rate that was seen in recent months. The company is bullish in its outlook as it predicts that first quarter revenue will be between $720 million and $730 million, while equity analysts were expecting $506 million.

Oracle said the pandemic ‘only briefly interrupted’ its business. Last night the group revealed respectable first quarter numbers. EPS 93 cents and that was higher than the 86 cents consensus estimate. On a quarterly basis revenue slipped by 6.3% to $9.37 billion, slightly exceeding forecasts. The cloud and licence services unit is the largest money generator in the group, and it saw revenue increase by 2%. The second quarter guidance was well-received as it expects EPS to be between 98 cents and $1.02, and traders were predicting 94 cents. Revenue is tipped to be $9.59 billion, in line with forecasts.  

Nikola Corporation shares have fallen as the Hindenburg allegations of fraud are hurting the stock once again. Citron Research appears to be backing Hindenburg’s note. The truck manufacturer refutes the claims.

FX

EUR/GBP is higher again as uncertainty persists in relation to the UK-EU trade situation. The tough talk from both parties with respect to walking away from the negotiating table has put pressure on the pound again. The UK government pushed back against the EU demands to back down in relation to the controversial internal market bill. The EU is keen to protect their internal market, and the UK wants to protect its internal market too. If a compromise is not achieved, trade between the EU and the UK could be done on WTO terms in the New Year, and the fear of the situation is hurting the pound.

The UK’s recovery continues as the economy grew by 6.6% in July, on a monthly basis. Economists were expecting growth of 6.7% and keep in mind that the June reading was 8.7%. It is encouraging to see that the UK economy has registered three consecutive months of expansion, but keep in mind that GDP is still down approximately 11% from the pre-pandemic level.

EUR/USD is gaining ground. Yesterday, the European Central Bank said there was no need to over react to the euro’s strength. Traders took the view that the ECB probably doesn’t like the firm euro, but they are not going to do anything about its strength. This morning, Philip Lane, the ECB’s chief economist, commentated that a firm euro will hold back the possibility of higher inflation. In the near-term, the Fed’s actions are likely to be the main driver of the euro, rather than the ECB.

Commodities

Gold has seen low volatility today. In the past few weeks, the metal has traded in a relatively small range. It has failed to make major headway and retest the $2,000 zone, but at the same time it has spent very little time close to the $1,900 area. While it remains above the 50-day moving average at $1,919, the uptrend should remain in place.

WTI and Brent crude are mixed. The energy contracts have traded within small ranges today. This week, the oil market came under a lot of pressure because demand concerns played on traders’ minds. Disappointing import numbers from China at the start of the week were a factor in the decline. In the past two days, stories of rising stockpiles in the US also hit the commodity.      

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