Brexit talks go to extra-time, AstraZeneca drops on takeover

Morning Note
  • Sterling rises as Brexit talks are extended again
  • European markets opened higher and US futures up
  • US stimulus in focus, Fed meeting later this week

Brexit talks are going into extra-time; neither side want it to go to penalties. Both the UK and EU say they will continue talking and want to go the ‘extra mile’. The market read this as progress towards a deal, although the two sides remain far apart on the last big issues. Sterling gapped higher at the Sunday night open, with some shorts maybe covering their positions on the extension. GBPUSD advanced to 1.34, bouncing on hopes of a deal, while the 200-day simple moving average offered the near term support. The pound also strengthened versus the euro as EURGBP dipped from the 0.92 area traded on Friday back towards 0.90. Those gaps may offer some decent intraday support but unless hopes rise in the next day or two would be liable for a fill. Sterling still trades with headline risk, but the truth is the ranges remain very tight and the failure to break out in either direction reflects the fact that the outcome remains very binary and both deal and no-deal are still very much in play. It’s probably a toss of the coin now whether we get a deal or not.

British banks with high exposure to the UK economy and property market remain high beta Brexit stocks – Lloyds and Natwest both rose 5% in early trade having taken a bit of a thumping at the end of last week. Likewise, housebuilders popped 5% higher on Brexit deal hopes. These stocks are a leveraged bet on the UK economy, which in the near-term at least is going to be at the mercy of a Brexit trade deal and the vaccination programme. Markets have also pushed back expectations for interest rate cuts by the Bank of England, which meets later this week.

AstraZeneca shares dropped 6% – seemingly on fears it’s paying too much for the US biotech company Alexion. Whilst the 45% premium may seem high, it’s probably not that significant when you consider the sector and the cash flow generation and revenue growth that it will bring. Debt taken on to buy the company will be repaid quickly. Richly-valued AZN shares needed to do some work too. It’s a big turnaround from the dark days of six years ago when Pfizer tried to land AstraZeneca.

Elsewhere it’s a familiar story of hope around fiscal stimulus in the US and vaccines being rolled out, with the Pfizer/BioNTech jab being rolled stateside today as part of a programme that will see 100m people inoculated by the end of March. Vaccines will continue to support risk sentiment and provide succour to the stock market as it enables investors to look past the current situation to a more normal 2021. For the time being Main Street needs help and as far as stimulus goes, getting a deal through Congress is proving as difficult as Brexit. The $908bn bipartisan package is being put forward today, but it’s uncertain whether it will pass.

The Federal Reserve meets later this week, with attention on its emergency $120bn monthly bond buying programme. It’s expected that the Fed will anchor expectations around the longevity of the asset purchases to make it clear it’s in this for the long haul. With 10-year Treasury yields rising in recent weeks, and coming close to 1% again, it may also choose to switch its focus to longer dated debt in order to better anchor interest rate expectations for a longer duration.

Britain takes vaccine lead, Brexit talks stumble, Ashtead pops

Morning Note

V for vaccine: A 90-year-old Briton became the first person to be inoculated against Covid-19 this morning as the UK begins its mass vaccination programme. The name Margaret Keenan will hopefully be remembered for symbolizing a momentous turning point in the fight against the virus.

Pfizer and BioNTech have had trouble with the supply chain but the UK should have 4m – enough for 2m people – by the end of the year. The second person vaccinated is a certain William Shakespeare from Warwickshire…a good omen? Health Matt Hancock says the Oxford University vaccine will get approval within a couple of weeks and that once the most vulnerable have been vaccinated the government will begin to lift restrictions. Truly light at the end of the tunnel.

Brrrrrr is for Boris’s Brexit: the saga drags on. UK prime minister Boris Johnson will fly to Brussels this week for a tete-a-tete with Ursula von der Leyen to try to break the impasse. The problem seems to be that there is simply no zone of compromise in the three remaining areas – fishing, level playing field and governance. So with neither side seeing a way to accommodate the other, they are both relying on the time element to do the work for them. This is risky as both sides have said no-deal is better than a bad deal. We know neither wants to compromise on key areas of sovereignty. Nevertheless, a last-minute effort should still lead to some form of agreement, even if it is a slimmer, incomplete package.

Sterling dipped sharply yesterday morning on some negative headlines but faded this move easily and this morning GBPUSD is holding steady above 1.33.

European stock markets traded a little lower in the early part of the session with Brexit risks perhaps weighing on sentiment and mixed session in Asia overnight. US lawmakers are set to pass a funding bill to avert a government shutdown, whilst market attention remains on whether a stimulus package can also be agreed before Christmas and the end of federal support on Dec 26th. Last week’s soft payrolls number ought to add to the sense of urgency.

US markets traded mixed on Monday, with the Nasdaq rising and the S&P 500 and Dow a bit weaker. Uber says it will end its driverless car ambitions, whilst Tesla shares rallied another 7% ahead of the stock’s inclusion in the S&P 500 later this month. The market cap now exceeds $600bn, which will make it among the largest stocks on the index. Shorts have been well and truly toasted and seem to be throwing in the towel – Jupiter Absolute Return fund manager James Clunie is stepping down after suffering a very bad run from his short Tesla position.

Lockdown in England in November saw a UK retail sales growth hit. Following from a string of upbeat numbers for retail, last month saw sales rise by just 0.9% from last year, a marked slowdown from the 4.9% year-on-year growth in October. Retailers will hope that the December lifting of restrictions and a Christmas to be largely spent at home and not on the slopes will deliver a lift.

With little to do, restaurants shut, and Christmas parties cancelled, grocery sales are resilient – Kantar reports 11.3% year-on-year growth in the 12 weeks to Nov 29th, and 13.9% growth last month alone. November turned out to be the biggest month ever for UK supermarkets. In the 12 weeks to the end of last month, Tesco sales rose 10.4%, Sainsbury’s +10.8%, WM Morrison +13.7% and Asda +7.7%, with the sector seeing inflation of 1.4% over the month.

On the earnings front, Ashtead shares shot to the top of the FTSE 100 after the company said it now expects full-year results to beat previous expectations. Enjoying essential business status in key markets helped it remain open over the second quarter, supplying equipment to various key service providers. In the first half, revenues fell 3%, with rental revenues down 4% on a constant currency basis. Operating profit declined to £641m from £771m last year but overall, the second quarter, covering the period to the end of October, was a lot better than the May to July period. In Q2, the decline in rental revenues slowed to just –1%. Pre-tax profits declined -21% in the first half, but Q2 showed a marked improvement from Q1 as profits only fell by –7%. A much more resilient period in the second quarter has allowed management to lift full-year expectations for free cash flow to exceed £1.2bn from previous guidance of £1bn. Rental revenue growth in both the UK and Canada is now seen at 15-20% this year, up from flat previously. At a group level, full year rental revenues are seem between –3% and –7% from previous guidance of –5% to –9%.

Yields pulled back, with the 10-year Treasury down to 0.93 having threatened to break 1% on Friday. Real rates moved further into negative territory, helping to push gold higher. Spot gold rose through the 21-day moving average on the upside as prices cleared the 38.2% retracement of the Mar-Aug rally.

Spot gold has risen through the 21-day average.

Week ahead: UK leads vaccine charge, Salesforce picks up (the) Slack

Week Ahead

The big news this week is the UK’s rollout of Pfizer-BioNTech’s Covid-19 vaccine. Could normality be coming finally after a topsy turvy year? Also, Salesforce buys Slack Tech, and the ECB holds its latest press conference to detail the EU’s financial outlook. 

UK Vaccine Rollout 

The UK approved the Pfizer-BioNTech two-dose vaccine as safe last week – and this week it begins and ambitious roll out programme designed to get the most vulnerable immunized as quickly as possible. 

Starting with care home residents and their carers, down nine steps to over 50s, a host of priority groups have been identified. No such luck for those under 50, who will have to wait, but once the priority groups have been jabbed, younger generations will get their shot. 

800,000 doses will have been delivered in the first vaccine wave. 

A vaccine that works will be essential for returning to normalcy in all walks of life, including trading. The UK is something of a guinea pig here, being the first developed nation to a) approve one of the myriad vaccines under development and b) tackling a mass vaccination programme. 

PM Boris Johnson has said the UK now faces a “massive logistical challenge” to get the vaccine where it’s needed, perhaps ignoring the fact the NHS rolls out immunization programmes to millions of vulnerable people every year. Still, this is an extraordinary event for an extraordinary twelve months, so we’ll have to wait and see how the roll out is managed.  

Economic implications of a vaccine are broadly very positive. For instance, it should support cyclical parts of the market forecast to struggle. It could provide the basis for a broader rally in equities too, and spur on rotation from big tech stocks that have been real pandemic winners. 

The FTSE 100 started December in the same vein as November’s big rally. Could UK equities start to shine again? A vaccine may be the shot in the arm they need to start performing once more. 

Still, it’s early days. The important thing is the vaccine has been approved and beginning to circulate. All eyes will be on the UK and its (hopefully) immunized population.  

Slack announces Q3 earnings as Salesforce prepares to buy company 

Work communications software provider Slack announces its Q3 2021 earnings this week just days after Salesforce announced its attentions to buy the company last week. 

Q2 2021 earnings for Slack showed a 49% year-on-year revenue increase, reaching a total $215.9m. Customer growth also accelerated in 30% y/y, with over 130,000 customers utilising Slack software. 

Will its Q3 earnings reflect further growth and pay off for Salesforce? 

At $27.7bn, Slack will be the biggest acquisition that Marc Benioff-owned Salesforce has made to date. It’s hoped that with the deal, the distance between it and Microsoft will become somewhat shorter in the corporate communications race. 

Slack’s software offer is similar to Microsoft teams. No doubt readers, very likely working from home for the past several long months, will now be intimate with Teams – the de facto choice of work communications software for businesses globally. 

Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce common stock under the deal. Salesforce agreed to pay a 55% premium to Slack stock’s November 24th 2020 closing price. 

ECB press conference 

The ECB will reveal its latest policy decisions at its December press conference this week. 

Stimulus is grabbing all the headlines. The Bank’s chief economist, Philip Lane, has said “worrying signals” that financial conditions for banks and small businesses are getting tighter.  

The minutes from the ECB’s last set of meetings are not painting a glowing picture of economic stability within the EU. The bloc’s economy, like pretty much everyone’s, has taking a hefty hit from a one-two combo of Covid-19 and lockdown. 

“It could not be excluded that the euro area, or at least some countries, would experience a double-dip recession,” they warned. 

According to comments made in October, the ECB is “recalibrating” its monetary instruments and will announce the outcomes at its December 10th press conference. Analysts expect it to expand both its bond-buying programme and ultra-cheap loans to banks. 

Essentially, investors have interpreted this that another substantial package of monetary easing measures is on the way. It should be pointed out that not all EU member states are particularly happy with this, expressing concern over “possible non-linearities, side effects and ‘diminishing returns’ in an environment of high uncertainty and very favourable financial conditions”, per October’s meeting minutes. 

Market participants will also be watching for any comments about the single currency’s appreciation. The euro jumped to multi-year highs against the dollar last week, breaking the psychologically important 1.20 level, which has in the past triggered attempts by policymakers to jawbone the currency lower. 

Webinars to watch 

Trading pro Mark Leigh is once again holding a suite of educational trading-focussed webinars this week to help you get further insights into the nitty gritty of trading. Highlights include: 

Mark Leigh’s Trader Clinic 

Monday 7th December – 2.00pm GMT 

See how a professional uses the ups and downs of trading to hone their strategy and improve their returns with our Trader Clinic. 

Sign up 

Technical Indicators to Understand and Apply to your Trading Strategy 

Monday 7th December – 5.00pm GMT 

Although there are hundreds of different technical indicators, this can often lead to confusion and contradictory signals. Learn Mark Leigh’s indicators of choice and how to use them together with your trading strategy. 

Sign up 

How to use Japanese Candlesticks to Recognise Trade Setups 

Tuesday 8th December – 6.00pm GMT 

Candlestick charts are the accepted industry standard for technical traders. Learn how to read and understand Japanese candlesticks and how to use this information in your trade making decisions. 

Sign up 

FXtrademark has a Proprietary Scorecard System for every Trade Setup 

Wednesday 9th December – 5.00pm GMT 

Learn to use the FXtrademark scorecard where you will score each trade set-up on a scale from 0 to 10 based on predetermined criterion. This system will allow you to trade with a system and a plan as opposed to making arbitrary decisions based on emotions. 

Sign up 

Putting it All Together with Money Management, Psychology and Analysis 

Thursday 10th December – 6.00pm GMT 

No strategy, signal or trading plan can succeed without proper calculated money management. Risk/reward practices and position sizing is paramount in developing your trading plan. Although new traders only want strategies and signals to start their trading careers, all experienced and successful traders understand and know that it’s all about the psychology of trading that separates successful from unsuccessful traders. 

Sign up 

Major Economic Data

Date  Time (GMT)  Currency  Event 
Sun Dec 6  9.30pm  AUD  AIG Services Index 
Mon Dec 7  3.00pm  CAD  Ivey PMI 
  Tentative  CAD  Annual Budget Release 
  11.50pm  JPY  Final GDP q/q 
Tue Dec 8  12.01am  GBP  BRC Retail Monitors y/y 
  6.45am  CHF  Unemployment Rate 
  Tentative  GBP  FPC Meeting Minutes 
  Tentative  GBP  FPC Statement 
Wed Dec 9  1.30am  CNH  PPI y/y 
  3.00pm  CAD  BOC Rate Statement 
  3.00pm  CAD  Overnight Rate 
  3.30pm  USD  Crude Oil Inventories 
Thu Dec 10  7.00am  GBP  GDP m/m 
  12.45pm  EUR  Main Referencing Rate 
  12.45pm  EUR  Monetary Policy Statement 
  1.30pm  EUR  ECB Press Conference 
  1.30pm  USD  Core CPI m/m 
  1.30pm  USD  CPI m/m 
  1.30pm  USD  Unemployment Claims 
Fri Dec 11  1.30pm  USD  Core PPI m/m 
  1.30pm  USD  PPI m/m 


Key earnings data

Date  Company  Event 
Mon Dec 7  Coupa Software Inc.  Q3 2021 Earnings 
Tue Dec 8  Brown-Forman Corp.  Q2 2021 Earnings 
  AutoZone Inc.  Q1 2021 Earnings 
  Ashtead plc.  Q3 2021 Earnings 
  MongoDB  Q3 2021 Earnings 
  Guidewire Software Inc.  Q1 2021 Earnings 
Wed Dec 9  Adobe Inc.  Q4 2020 Earnings 
  Campbell Soup Co.  Q1 2021 Earnings 
Thu Dec 10  Oracle Corp.  Q2 2021 Earnings 
  Costco Wholesale Corp.  Q1 2021 Earnings 
  Broadcom  Q24 2020 Earnings 
  Lululemon   Q3 2020 Earnings 
  Vail Resorts   Q1 2021 Earnings 
Fri Dec 11  Carl Zeiss Meditec AG  Q4 2020 Earnings 

FTSE hits post-pandemic high, oil bid on OPEC deal

Morning Note

Risk is bid and the FTSE 100 edged out further gains in early trade on Friday to take out the previous post-trough peak struck on Jun 8th, rallying north of 6,530 to make a new post-pandemic high. The move coincides with an increasingly bullish stance on UK equities being taken by investors on hopes for a broad cyclical recovery in 2021 led by vaccines and a UK-EU trade deal being struck. Meanwhile market sentiment may improve as a US stimulus package inches closer to becoming real, with lawmakers getting behind the bipartisan $908bn package on the table now. News that Pfizer would only deliver half the vaccines it had planned to this year due to supply chain problems took a little of the shine off risk and the S&P 500 yesterday after it had struck a record intra-day high. 


Brexit talks seem to be going somewhere and yet nowhere. The main barriers of fishing and the level playing field still frustrate. Nevertheless, sterling rallied to its strongest since the Boris Bounce of Dec 2019, briefly hitting $1.35. A lot of that was down to dollar weakness but we also see signs the market is getting upbeat on sterling ahead of an anticipated Brexit deal. Reports suggest the EU (France) brought in new demands at the 11th hour but overall, it’s been the usual smattering of ‘sources’ and reports highlighting divergences amid tentative signs of progress. One ‘senior British source’ said the prospect of securing a deal in the next few days was ‘receding’. We now run the risk of the internal market bill, which returns to the House of Commons next week, being debated and passed by MPs just as talks are at a critical phase, which will likely increase tensions on both sides as the legislation has stirred up unease in the EU. Talks are to continue over the weekend with a view to having a deal before the EU Council meeting of Dec 10th/11th. If we don’t have a deal by then we start to be worried that the talks falter and it becomes a Mexican standoff. 


Wall Street was mixed – the S&P 500 closed out marginally weaker though the Dow Jones popped higher thanks to a 6% gain for Boeing. Shares in the aircraft maker rose after Ryanair committed to buying 75 more 737 Max jets. This is a big vote of confidence in the troubled jet and is a welcome boost for Boeing. Ryanair clearly has an eye for a bargain.  


Tesla shares rose another 4% to $593 after a Goldman Sachs upgrade. The investment bank raised the12-month price target to $780 from $455 Analysts said the shift toward battery electric vehicle adoption is accelerating more quickly than previously anticipated whilst battery prices are falling faster than previously expected, which improves the economics of EV ownership. Elon Musk told employees to rein in spending though, warning that investors are giving the stock a lot of credit for profitability and would “will immediately get crushed like a soufflé under a sledgehammer”, if they miss on forecasts. 


Crude oil prices rose after OPEC agreed a deal with allies to gradually raise output next year. Although it was arguably a slightly less ambitious extension of cuts than had been hoped for, it reflects a divergence of opinion among major producers and the fact less oil is coming on the market in January has put a bid under prices. OPEC+ will gradually raise production by 500k bpd from next month, less than the scheduled increase of 2m bpd under the old agreement. Ministers will now meet monthly to agree to rolling cuts. WTI (Jan) traded at $46.50, its highest since March. The question now is really about compliance, which has been strong overall but unevenly distributed – will the agreement on paper actually pan out on the ground? 

Inflation expectations rise, OPEC+ rollover expected

Morning Note

Inflation coming? Whilst regular readers may spot a familiar thread, which I have pulled at on various occasions, we are starting to see signs of inflation coming through. Yields have started to shoot higher along with US 10-year breakeven inflation expectations, with the latter rising to 1.84%, the highest since May 2019 amid signs Washington could yet move on a stimulus package.

Five-year average inflation expectations are at 2.25%. Benchmark 10-year US yields climbed to 0.95%, approaching the November peak again. Gold rallied on higher break-evens and lower real yields, now up to $1,840 on the old 38.2% retracement support of the Mar-Aug rally and approaching the key $1,850 support-turned-resistance.

Democrat leaders Nancy Pelosi and Chuck Schumer got behind a $908bn bipartisan deal and said they would use this as a basis for a relief bill. It puts more pressure on the GOP to agree to a relief bill before Christmas. Given the CDC is warning off the “most difficult time” in US public health history over the winter, financial relief will be vital until vaccines are rolled out.

More stimulus heaped on what’s already been delivered combined with a mass reopening of economies next year will deliver a pro-cyclical high that will create inflation. As discussed on multiple occasions, whilst there are barriers, the conditions for inflation are there: pent-up demand, a savings glut, the vast increase in the money supply and enormous liquidity put that is underpinning global financial markets, as well as central banks openly saying they will let economies run hot: the Fed’s average inflation targeting explicitly calls for an overshoot, which may allow inflation expectations to become unanchored.

Central banks are not positioned or possessing of the necessary fibre to deliver an increase in interest rates at a level required to suck the money back out of the system in the recovery phase. The recent US PMI surveys for November showed the quickest rise in selling prices yet recorded, with the rate of inflation hitting a record high in the service sector and a 25-month high in manufacturing. Whilst inflation was the dog that didn’t bark after the great financial crisis, it may be about to bite. Post-GFC growth in money supply was absorbed by banks to bolster liquidity and capital requirements. And there was no coordinated fiscal stimulus alongside the monetary policy support. This time the growth in M2 money is being mainlined into the economy’s veins.

Britain’s decision to rollout the Pfizer/BioNTech vaccine in the coming days is being treated as a positive and supportive of the reopening/rotation trade that was the major market theme of November. This saw the FTSE 100 rise over 1% yesterday and the index now looks reasonably well supported above 6,400.

As discussed yesterday, UK equities are fast becoming a consensus buy with cyclical weighting and relative cheapness to peers making them look more attractive as the economy bounces back next year thanks to vaccines. European markets were lower in early trade on Thursday with the FTSE outperforming remaining broadly flat. US futures were a tad lower after the S&P 500 rallied 0.2% to another record high in a mixed session on Wall Street on Wednesday that started off in drab fashion before the lower-dollar, higher-yield risk-on trend took hold and bulls drove the index to close at the high of the day at 3,669.

Yesterday afternoon saw a sharp and sustained move lower in the dollar, boosting major peers like the euro and sterling. EURUSD advanced beyond 1.21 with little resistance in the way to 1.25. GBPUSD trades towards the top of the recent range at 1.34. Uncertainty over whether Britain will secure a free trade deal with the EU is preventing a breakout. Upside pressure will lead to a burst through to 1.40 if there is a deal announced, which could occur in the next few days. Currently, the noises from Brussels, and notably Paris, are not so reassuring. France is leaning very hard on Barnier not to concede too much or they will veto a deal – you have to think this is bluff: Merkel would send Macron to the naughty step if he played de Gaulle and scuppered 4 years of negotiations for some Breton fishers.

Oil moved higher yesterday afternoon amid signs of greater consensus around achieving a deal today as the full OPEC+ cartel convenes to figure out how to proceed with supply restraint in the first half of 2021. OPEC and allies are said to be leaning towards a rollover of current cuts with a gradual increase in output.

Under the current production cuts agreed earlier this year, output is scheduled to increase by around 2m bpd from January, however, it is widely anticipated that OPEC and allies led by Russia will extend the current 7.7m bpd in cuts for another three months. Dissenting voices from the likes of the United Arab Emirates ultimately should be brought around by kingpin Saudi Arabia. A deal of some kind to extend current levels of output restraint is essential to keep WTI north of $40, with Jan contract currently trading above $45.

EIA inventory data showed a slight fall in US crude stocks, but gasoline and distillate inventories rose due to slacker demand for end products. Although crude inventories fell by 679k barrels, gasoline stocks and distillate inventories rose by 3.5m barrels and 3.2 million barrels respectively. Expect this trend to continue as slack demand persists over the winter. As we’ve been warning, near-term demand pressures will need to be overlooked by markets to sustain prices as inventories seem set to build over the next couple of months.

Another Monday morning, another positive vaccine update for markets, Cineworld jumps

Morning Note

Another Monday morning and another positive vaccine update: AstraZeneca reports its Covid-19 vaccine is 70% effective, helping put a bid under risk assets in early trading on Monday. Astra said this morning that one dosing regimen showed vaccine efficacy of 90% when the AZD1222 vaccine was given as a half dose, followed by a full dose at least one month apart. Another dosing regimen showed 62% efficacy when given as two full doses at least one month apart.

The combined analysis produced in an average efficacy of 70%. What’s going to be interesting is whether the 90% efficacy with a half dose can be repeated as this would bring it line with the Pfizer and Moderna efficacy rates whilst being significantly easier to rollout at scale.

Indeed, whilst not as headline-grabbing as a 95% efficacy rate, 70% is by all accounts still very significant and Astra’s vaccine is cheaper, easier to deliver around the world and much easier to produce in large quantities than the Pfizer or Moderna versions, so it will likely play a big role global immunisation. However, the market is not getting the boost as it did from the Pfizer or Moderna updates.

To a degree that’s because a large amount of market rotation has been priced with November’s gains, and a decent success rate was expected from the Astra/Oxford trials (shares in Astra fell over 1% on the news), but also because in the meantime we have seem soaring case numbers that means the economic recovery will struggle before vaccines take effect.

European services PMIs for November are weaker due to the lockdowns, whilst manufacturing activity is broadly holding up and the US data due later today probably will just show expansion. But the outlook for 2021 is surely improving the more good vaccine news emerges – the key is how quickly the mass vaccination can occur and how quickly we are ‘back to normal’.

On that front, there have been reports Britain could give approval to Pfizer-BioNTech vaccine this week, whilst Americans are due to start receiving vaccines next month. Dr Moncef Slaoui, chief scientific adviser for Operation Warp Speed, said the FDA will likely approve the Pfizer/Biontech vaccine by mid-December and inoculations would start immediately thereafter.

The market is dealing with a familiar theme in terms of the return-to-normal trade. Do bulls bid this up on the reopening trade, or are there greater risks under the bonnet? European markets took a positive view and moved higher, with the FTSE 100 edging up to last week’s highs at 6,400 in early trade. Positive vaccine developments should start to create a much more upbeat picture for the UK market.

The DAX popped after the manufacturing PMI was stronger than expected at 57.9 and the services survey at 46.2 was much better than France’s rather soft 38.0.

Cineworld shares leapt 19% after the company bought itself a few more months survival. The company secured a new debt facility of $450m and issued equity warrants representing over 11% of share capital. It also managed to get banks to waive debt covenants until June 2022 and further reduced costs. It’s heavily laden with debt after two leveraged acquisitions but this new facility should act as a bridge to get to a point where it can reopen screens in the UK and US and get the cash flow moving in the right direction again.

However, the company is working on the assumption that can reopen in May. Under this base case scenario, Cineworld has sufficient headroom for 2021 and beyond. But in the event of a further delay to cinema reopening, whilst it has sufficient liquidity ‘for a number of additional months’, it ‘may require lender support in order to deploy that liquidity’, management said today. Bums on seats by May is dependent entirely on a vaccine – if there is a stock trading on this vaccine roll-out it’s Cineworld.

WTI crude oil leapt to its highest level since the start of September after Yemen’s Houthis attacked a Saudi Aramco facility in Jeddah. Whilst there is no confirmation of any damage, the reports seem to have put a bid under oil, whilst the positive vaccine news is another support.

Sterling also rose to its strongest since the start of September amid reports the Brexit deal is 95% agreed. As ever chatter around UK-EU trade talks will drive the price action for sterling crosses.

Whilst we have many deadlines come and go, several false dawns and lots of disappointment, this really is make-or-break time.

GBPUSD may be moving in anticipation of a deal – could be a day or two too soon but we shall see. In addition, positive vaccine news would tend to support the pound as the UK economy is more services-driven and more exposed to lockdowns and restrictions on travel, social distancing and consumer confidence.

GBP performance against USD.

What to do during a pandemic: DIY, order stuff online and drink?

Morning Note

B&Q owner Kingfisher has done well out of the pandemic as consumers have found reasons and savings to tart up their homes and gardens. Q3 numbers suggest the trend has not waned, but it may not persist at these levels for much longer.

Total group sales rose 17.6% to £3.5bn, with like-for-like sales +12.6%. Home doer-uppers were the driver with B&Q LFLs +24% on constant currency basis, whilst trade desks at Screwfix saw sales at +12.8% on the same basis. Total UK & Ireland sales +19.9% compared with +19.2% in France, +7.5% in Poland, +10.6% in Romania and +18.1% in Iberia.

Whilst uncertainty over Covid-19 and the impact of temporary lockdown restrictions in most of its markets continue to limit the near-term visibility, management feel that consumers’ “renewed focus on homes” is supportive for sales.

Whilst this may be true in the near-term, shares have already handsomely since the March lows and sales momentum is unlikely to continue through 2021 as vaccines enable a return to more normal activities. KGF may have experienced a significant pull-forward in demand that won’t continue. Shares declined almost 4% in early trade before paring losses to track –2% as of send time.

Meanwhile, it’s well understood that kicking our heels at home has boosted online purchases and Royal Mail has achieved a milestone in its history as a result of the pandemic, though the trend has been going in this direction for many years. For the first time, parcels revenue at Royal Mail exceeds letters revenue, representing 60% of total revenue, compared with 47% in the prior period.

Parcel volumes rose 31% as letter vols declined 33%. Revenues at the GLS rose 21.7%, with an operating margin of +8.9% and profits +84.4% to £166m. Royal Mail revenues are now projected to be £380 to £580 million higher year on year, but the mix change costs are increasing to £210 million.

The results indicate Royal Mail is moving in the right direction in terms of the shift to parcels, and point to the large opportunity in this space that the company has been a bit slow to adapt hitherto. But it also points to some near-term cost implications from the mix change. Shares rose over 6% in early trade.

Finally, the demon drink has been an important salve and Naked Wines has prospered from its direct to consumer model. First half revenues surged 80% year-on-year to £157.1m.

New customers strong, with active ‘Angels’ base +37% to 757k. The company is now the largest direct to consumer wine merchant in the USA and it is doing a good job of scaling up the operations to respond to the demand in its core markets with warehouse capacity +104%. Fixed costs as percentage of revenues –5 percentage points is another positive. Outlook upgraded for sales growth to achieve 55-65% this year. Shares rose 7% in early trade.

Stocks opened lower in Europe this morning after a soft session on Wall Street despite positive vaccine updates. Yesterday, stocks on Wall Street fell, whilst European stocks rose after Pfizer and Biontech said their vaccine is 95% effective after completing the final phase three trial analysis. The Dow Jones industrial average and S&P 500 declined over 1%, and the Dow Transports index dropped 0.7% after hitting a record high.

The small cap Russell 2000 also dropped over 1% after achieving a fresh intra-day record high. There are definitely some fears that the lack of progress on a new stimulus aid package in the US is going to put pressure on corporates and earnings before the vaccines do their stuff. Meanwhile the virus is showing no signs of slowing down in its spread – New York now closing schools.

The initial reaction in the market to the Pfizer/Biontech news was positive but muted – after last Monday a result in this area had been almost fully priced in, especially since the Moderna news this week. What it does is underscore the fact that we are heading into a much brighter 2021, and whilst temporary lockdowns need to be endured, the back-to-normal trade is still ‘on’.

And there was more good health news this morning as the coronavirus vaccine being developed by AstraZeneca with Oxford University was shown to be safe and produces an immune response in all adults, according to a Lancet report covering mid-stage trials. Phase three efficacy results will follow soon enough, with hopes high for a vaccine to be ready this year.

Sterling went on a bit of a random walk yesterday afternoon, pushing up to week highs against the euro and dollar. GBPUSD tested 1.33, close at last week’s two-month high, while EURGBP dipped to 0.89150 before the pound pared gains. Are traders sniffing around for a Brexit deal?

EIA inventories showed a rise in US crude and gasoline stocks last week. Crude inventories rose by 768k barrels in the week to Nov 13th, lower than the expected build but this seems to be down to a rise in production to 10.9m bd from 10.5m bpd in the previous week. Crude stocks at Cushing, Oklahoma rose 1.2m barrels to 61.6m barrels, the highest level since May.

With vaccines not immediately on the horizon and the virus ripping through the US, inventories should only continue to build over the winter, and this could heap pressure on pricing. WTI (Jan) tested the $41.50 again before bouncing back to $42 but has peeled off this level in early trade this morning.

Elsewhere, watch for the EU leaders meeting online to try and agree the budget after Poland and Hungary vetoed the package. US jobless claims also on tap later seen at +700k. Bitcoin has pared gains to around $17,500 with the near-term support around $17,200-300 at yesterday’s lows. Below this calls for $16,600.

Stocks mixed after vaccine melt-up, watch for ongoing rotation

Morning Note

First the relief, now for a wee dose of reality. Stock markets are looking a little more cautious after yesterday’s massive surge on news that Pfizer and Biontech have a vaccine that is 90% effective – investors will now show a tad more caution that the kneejerk rally is out of the way.

Markets have a habit of overshooting on the way down, and on the way back up. Nevertheless, an effective vaccine changes the game for investors, at the very least in terms of relative valuations and the premium we are willing to pay for growth.

We have a lot more clarity now than a week ago for two big reasons. Joe Biden is all but certain to become the next president of the United States. More importantly, a vaccine is coming.

The worst fears – of enduring year after year of masks, of having semi-permanent lockdowns and restrictions on our liberties lasting for ever – should not come to pass.

All we need now is a Brexit deal this week as the cherry on the cake. What we in Britain and Europe need more than anything is a confidence injection – and a working vaccine does that. A comprehensive FTA with the EU would help, too.

The FTSE 100 rose over 4.6%, settling just under 6,200. The DAX rose almost 5% and the CAC in Paris was up almost 8%. US stocks opened considerably higher as they took the cue from Europe, but closed less in the green.

The Dow rallied 800 points but that was about half the gains at the high of the day, which was a new intra-day peak. The S&P 500 finished up over 1% but also at the lows of the day.

In a clear signal of a major rotation from growth to value, the Nasdaq 100 fell over 2%, while the Russell 2000 climbed over 4%.

This is a trade that seems to have legs. Due to the makeup of indices and heavy reliance on the big tech names (5 big tech names make up about a quarter of the S&P 500), rotation of this nature may act as a headwind and means it’s not a straight line up.

It will be messy as portfolios rebalance and we can expect more outsize moves in some of the most exposed stocks to the vaccine. But, overall, the landscape for equity markets is favourable.

Yesterday we saw some very high volumes in some of the stocks worst affected by the pandemic on the platform.

S&P 500 volume leaders included American Airlines (+15%), Pfizer (+7.7%) and Carnival (+39%).

Netflix (-9%) and Zoom (-17%) indicated the degree to which the stay-at-home trade was unwound.

On the UK market, there was big volume in Cineworld (+40%), IAG (+25%) Rolls-Royce (+44%), whilst Ocado (-12%) and JustEat (-9%) were offered as part of the rotation.

We do have some uncomfortable questions to answer – does a vaccine on the near horizon preclude more stimulus? Perhaps, a lot depends on the Senate runoffs in Georgia, but the US economy needs a bridge to get to the sunlit uplands of vaccine country.

Europe can’t even get its stimulus delivered, whilst in the UK the government continues to offer support to business but does not seem willing to acknowledge the other problems created by lockdowns – a vaccine may give them further excuse to restrict liberties as ‘it will only be for a little longer’.

The vaccine won’t stop this from being a very tough winter in Britain, Europe, and elsewhere. Data this morning showed the UK unemployment rate in the three months to September rose to 4.8% as the number of people out of work rose by 243,000.

Does a vaccine change the game for the Fed? It ought to, but if experience is anything to go by, the Fed won’t want to rock the boat anytime soon. Several Fed speakers on tap this week will give a clue – expect them to stress the need for fiscal support now as a vaccine won’t available en masse for some months. Overall, the outlook for markets is a lot more positive.

European markets are trading a bit mixed this morning. The FTSE 100 rose above 6,200 while the DAX faded 0.5% to 13,000.

Travel stocks rose again on Tuesday, building on some very big gains notched in the previous session. So too did banks – a vaccine will steepen the yield curve which will make a significant difference to banks’ net interest margins. It should also help limit credit impairments.

Treasury yields rose – the US 10-year yield leapt to 0.94%, the highest since March, which sent the 2yr/10yr spread to its widest in almost three years.

Gold sank to the bottom of the recent range, testing the Sep lows at $1,850 before catching some bid to recover to around $1,887 this morning. UK 10 year gilt yields also jumped to its highest level in some months at 0.377%.

In FX, the vaccine could help risk-on currencies like sterling and the Aussie. GBPUSD advanced to 1.32 and trades with upside momentum in play.

Brexit talks this week threaten headline risk but increasingly the market believes that the posturing over fishing rights and level playing fields will give way to the cold, hard reality of securing a deal in time for Christmas.

Vaccine winners and losers


Stocks have rallied on news that we could soon have an effective vaccine against Covid-19.

Initial optimism is exceedingly high and could fade – we should not be jumping any guns here – but ultimately a vaccine that works effectively would be good for the economy and favours the cyclical parts of the market that we thought were going to struggle as a split Congress meant less stimulus.

A working vaccine is positive for cyclicals and value – the reopening trade essentially. The dichotomy in the market is stark: the biggest gainers in a frantic session today are among those stocks worst hit by the pandemic – travel and leisure chiefly, whilst Covid winners are doing poorly. We should be careful in overreacting – but it’s clear the market is forward-looking and pricing in recovery in a number of beaten-down areas next year.

Several questions remain, which won’t be answered right away.

When does the vaccine get rolled out fully? So how quickly are we ‘back to normal’ effectively? The UK has pre-ordered 30m doses of the vaccine, but what about other countries?

Given the US election result, does this make it harder to agree stimulus that is required now for the economy?
If this is a higher yield, higher inflation world, how does the Fed start to adjust? Will it even consider thinking about thinking about raising rates? Lots of Fed speakers this week to frantically rewrite their speeches.


Major indices (ex-Nasdaq). The Dow is surging 1,500pts and set to open at a record high. The FTSE 100 is up over 5% with all sectors green, led by energy and financial and Utilities, Tech and Healthcare at the bottom but still positive as the news lifted the boats.

The Dow Jones shows how stocks are performing well thanks to the positive vaccine news.

Travel stocks like IAG +30% and EasyJet +26% are among the best risers on the UK market, whilst Rolls-Royce +46% led the charge. Cineworld +47% and Carnival +31% also indicative of a major rotation back into these stocks that have been hardest hit by the pandemic. In the case of Cineworld the 9.4% stock out on loan points to a nasty short squeeze that may exaggerate the move.

Pubs and restaurants like JDW +15% and Restaurant Group +26% were among the other big gainers from the news. Back to normal means back to the pub – happy days!

Energy – A vaccine should help boost demand more quickly. As crude prices rallied, Shell +12% and BP +15% boosted the FTSE 100.

Financials – A vaccine is a yield steepener – Lloyds and Barclays both +10%.

Crude oil naturally rose on expectations that a working vaccine will equate to a swifter demand recovery, at least much quicker than we would have thought only yesterday.

These stocks are winning with the news of the covid vaccine progress.



Covid winners: Stocks that won because of the pandemic are naturally on the hook. Stay at home and WFH stocks fell, hurting the Nasdaq. Zoom –15% and Peloton –11% pre-market is indicative of the rotation out of these Covid winners into reopening trades.

US tech is suffering as a potential lockdown solution emerges.


UK stocks in the red included the main winners from the pandemic – Ocado, Fresnillo and Kingfisher (back to normal means no DIY – oh happy days)

Stocks like these are slipping under the covid vaccine announcement.

Keep an eye on these stocks when the US cash equities open later and (Covid Winners Basket).

These stocks could go up or down, depending on vaccine progress.

Bonds – US Treasuries were offered with the 10-year yield spiking north of 0.92%. Inflation could come through next year with large excess savings to be deployed in many sectors of the economy, notably in travel.

Gold – higher yields weighed on gold prices, though we would expect inflation expectations to rise and this could offer ongoing support to prices.


Gold is in an odd place, thanks to Pfizer's vaccine progress.

Global equities up on vaccine, trade hope

Morning Note

You just can’t keep ‘em down: Stocks surged again as vaccine hopes and positive language around US-China trade lifted the boats. The S&P 500 closed at a new record high at 3,431, led by Energy and Financials, two of the most beaten-up sectors, with Technology and Healthcare were at the bottom.  European stocks caught a strong bid with the major bourses rallying around 2% on Monday. Asian markets followed the lead overnight, with Tokyo up more than 1% and although Shanghai and Hong Kong were a tad weaker.

Germany Q2 GDP slump revised, European stocks firm

Today, the narrative is much the same as yesterday. European stocks continued to advance with gains of around 1% as risk sentiment remained robust after official figures showed Germany’s economy shrank less than previously thought in the second quarter. The numbers are still terrible: output declined by –9.7%, but this was an improvement on the –10.1% drop in the original release. Germany’s Ifo business survey showed sentiment is on the rise too.

The euro caught some bid after these two releases to advance above 1.1830 and test trend resistance having come under a bit of pressure yesterday evening again as the near-term downtrend remains the dominant force. Yesterday’s high at 1.1850 is the bulls’ target and this needs to be cleared to suggest the bears have lost control.

The DAX rose above 13,200 to take it near the post-trough high at 13,313 hit on July 21st. The FTSE 100 advanced towards 6,200 with beaten up travel & leisure stocks among the leaders. Both pared gains after the first hour of trading however. US futures point to further gains on Wall Street.

Apple continues to surge, US and Chinese officials discuss trade

Apple shares rose over $500 as investors continued to pile in and analysts noted that its forward earnings multiples are not that rich after all, and certainly not as expensive as rivals. Apple has transformed itself from a pure hardware manufacturer to a full service led tech platform and therefore the stock has rerated.

Top US and Chinese officials discussed the phase one trade agreement after a meeting scheduled for earlier this month was postponed. Both sides are seeing progress in areas like the increase in purchases of US products by China.

The two sides also discussed how China will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer, the US Trade Representative said in a statement. This came after the US and EU agreed to reduce tariffs on some goods.

AstraZeneca begins antibody trials, economists concerned over double-dip recession

Meanwhile vaccine news is still helping rather than hindering risk sentiment. AstraZeneca said today it has begun the phase one clinical trial of its monoclonal antibody combination for the prevention and treatment of Covid-19. However, Hong Kong has reported its first confirmed coronavirus re-infection, with a man found to have been infected months apart by different strains of the virus.

Economists remain concerned about the double dip: according to the National Association for Business Economics, there is a one in four chance the US economy could fall into a double-dip recession. Two-thirds of economists surveyed think the world’s largest economy remains in recession.

Republican convention kicks off with warnings of election rigging

President Trump got the Republican convention off to a belligerent start as he warned of a rigged election as he sought to cast doubt over the voting process ahead of the election. I don’t think the market really needs to worry about there not being a smooth handover of power, but I would think that a close result could see Trump launch multiple legal challenges which would create the kind of uncertainty markets don’t like.

Elsewhere, gold continues within the near-term downtrend but is yet to make a new low since the $1911 trough last week and is catching support from the longer-term rising trend line. US real rates (10yr TIPS) slipped further into negative territory again.


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