IPO fever fails to ignite European stocks, as Fed looms

Europe

It’s been a fairly lacklustre session for European stocks, with little in the way of news flow to pique the interest of investors, with the FTSE100 sliding back as the pound heads back towards the 1.3000 area against the US dollar.

An upgrade to global growth forecasts by the OECD didn’t illicit much in the way of a positive reaction, probably because the forecasts were heavily caveated on the basis that a second lockdown would in all likelihood negate them.

On the IPO front The Hut Group has seen its shares soar on the first day of conditional trading, up over 25% from its initial 500p issue price. The Hut Group is an on-line retail business which operates brands like Lookfantastic.com and ESPA, which is a luxury skin and body care company.

Its retail brands aren’t its only unique selling point, the company also has a technology and operating platform called THG Ingenuity which is used by big blue chip corporate brands like Nestle, Procter and Gamble and Johnson and Johnson for their ecommerce operations. It is here that the real growth potential lies with an operation that operates across 5 continents.

European retail has also enjoyed another positive day, after H&M’s results yesterday. Zara owner Inditex followed suit today, returning to profit in Q2, helping to cut H1 pre-tax losses to €195m.

Royal Mail shares are amongst the best performers on the FTSE250 hitting its best levels this year after US rival FedEx blew the doors off with its latest profit and revenue numbers. Since the March lows of 119.30p Royal Mail shares have doubled in value.

Redrow Homes shares have recovered after a slightly lower start after full year profits came in slightly below estimates. A 39% rise in the forward order book along with a pledge to consider reinstating the dividend next year has helped give the shares a lift.

Forward reservations are also higher, though some of that may well be a release of pent up demand after the closures of earlier this year.

Rolls Royce shares have continued to get rinsed after falling below 200p, and a 16 year low, as the prospect of a prolonged period of lower activity in the civil aviation sector continues to weigh on the company’s finances.

With the upcoming rights issue due to take place later this month, and the recent downgrade to junk status by Moody’s, there has to be questions as to how much further it can fall and whether it could find itself out of the FTSE100 at the next reshuffle, unless there is a recovery in sentiment very soon.

The UK’s 4^th largest supermarket, Morrisons has also slipped back after being cut to underweight by JPMorgan.

British Airways owner IAG shares have also come under pressure after CEO Alex Cruz admitted that the airline was in a battle for survival, saying that the business was burning through £20m a day as a result of the slump in passengers. Only 187k travelled with the company on 7^th September compared to 1m a year ago. 

Staying in the travel sector TUI shares have also dropped sharply on reports from Handelsblatt that the company is planning a rights issue of between €700m to €1bn.

US

Despite finishing off their highs yesterday US markets have opened higher after retail sales for August came in below expectations at 0.6%. Not only did August retail sales disappoint, but the July numbers were also revised lower to 0.9%. This shouldn’t have been too much of a surprise given recent falls in consumer confidence, while the control group measure which is used in the calculation for the GDP numbers declined 0.1%. While the labour market may be proving to be more resilient than expected, it is clear that consumers are holding back from splashing the cash, as disposable income gets squeezed.  

On the earnings front FedEx shares have popped higher after profits blew through expectations for Q1, on the top and bottom line. Profits came in at $4.87c a share, well above the $2.69c a share expected, while revenues also surged coming in at $19.32bn, $1.9bn above expectations, as package volumes surged to 11.6m, a rise of over 30%.

Adobe shares also leapt higher after they also beat expectations on Q3 revenues and profits, helped by a 19% rise in its Digital Media business  

Apple shares have slipped back a touch in the aftermath of yesterday’s showcase event of new products and various upgrades. There appears to be an undercurrent of disappointment at the lack of detail around the roll out of a new 5G iPhone.

We’re still awaiting the launch of the Snowflake IPO as traders in the US start to pull together their opening prices.

FX

The pound has enjoyed another positive session despite a sharp slide in August inflation to 0.2%, with core prices falling to a five year low. Talk of a compromise on the UK governments Internal Markets Bill appears to be prompting a squeeze on sterling short positions, pulling the pound back towards the 1.3000 level.

The US dollar has continued to come under pressure, slipping back for the fourth day in succession, ahead of this evening’s press conference with Fed chair Jay Powell.

Commodities

Gold prices have continued to be well supported, edging back towards one week highs ahead of today’s latest Fed decision.

Crude oil prices have continued their rise from yesterday, as the closure of US production facilities due to Hurricane Sally, raised concerns about tighter supply, while OPEC+ said that recent cuts in production for August had seen solid compliance, coming in at 101%. US inventories fell 4.39m barrels, against an expectation of a 2m build, again showing that the various production closures were depleting stocks.

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