FTSE stays on top with Boris Johnson committed to avoiding second lockdown
The FTSE 100 led the European equities rally for a second consecutive day on on Wednesday, following the public address by Boris Johnson the previous evening, in which the prime minister reiterated his reluctance to implement a second lockdown.
With promises to “keep the economy open” and “wrap [his] arms around workers and industries”, the FTSE was sufficiently comforted to manage a 1.20% rally, at one point touching 5,972 before settling back down to 5,899 points.
Following close behind, with more modest rallies, were the FTSE’s Eurozone equities cousins. Recovering from a couple of days of acute Covid fears, the CAC rallied by 0.62%, to 4,802, while the DAX nigh-on mirrored its Tuesday performance, up 0.39%, to 12,642 points.
A real talking point in global equities, though, was the opening of the Dow Jones during the afternoon, which saw the audacious early gains in European markets somewhat taper off. The reason for this was a 1.36% decline by the Dow Jones, taking it to another, renewed, seven-week nadir of 26,916 points.
This level, well shy of the 28,000 point level it spent much of its time before the pandemic and during the summer, is unlikely to be bettered until big tech reticence, and pre-election jitters, fade.
Asian equities were largely flat as they closed for the day, with Shanghai’s SSE Composite up by a modest 0.17%, to 3,279 points; Hong Kong’s Hang Seng rising 0.11%, to 23,742; and Japan’s TOPIX falling 0.13%, to 1,644 points.
Speaking on the FTSE reaction to disappointing PMI data, and the possibility for further Covid restrictions to be implemented, Spreadex Financial Analyst, Connor Campbell, stated:
“This also meant the FTSE was fine with shaking off some disappointing flash PMIs. The manufacturing reading fell from 55.2 to 54.3, while the services sector suffered a sharper than forecast drop from an ‘Eat Out to Help Out’-boosted 58.8 to 55.1. That latter reading, however, puts it well above the 47.6 seen for the Eurozone as a whole.”
“It is worth remembering that, as Dominic Raab conceded, the measures announced in the last few days are by no means a ‘silver bullet’ when it comes to seeing off – or mitigating – a second wave, and further restrictions could still be implemented, especially with the UK’s current daily case figures.”
Government warns up to 70% of traders not prepared for Brexit border controls
According to the government’s predictions, a reasonable worst-case scenario (RWCS) would be that the EU would enforce third country controls against UK goods at the end of the Brexit transition period. In a RWCS, the government anticipates between 40-70% of trucks travelling to the EU might not be ready for new border controls, and as a result, largescale disruption would ensue.
It also stated that the lack of capacity to hold unready vehicles in France, or turn away freight prior to boarding in the UK, could reduce the flow rate to as low as 60-80% of normal levels, which could lead to queues of up to 7,000 vehicles in Kent and maximum delays of up to two days. The report adds that HGVs in the queue will be both unable to travel to the EU to deliver their goods, nor collect another consignment – and thus both imports and exports could be affected to a similar extent.
It continues, saying that while there could be lower initial degrees of disruption, these are likely to increase over the first few weeks as freight demand builds and queues back up. Also, while more HGVs arrive at ports fully prepared, the risk remains that Schengen passport controls at opposing controls could continue until the French either relax checks or expand their capacity.
In a letter to colleagues, the Duchy of the Chancellor of Lancaster, Michael Gove, stated:
“As a responsible government we continue to make extensive preparations for a wide range of scenarios. Officials have been working closely with key stakeholders on a range of plans to minimise and manage the risk of disruption to the flow of goods. This includes the procurement of freight capacity to ensure Category 1 goods including critical medicines can continue to be imported.”
“The biggest potential cause of disruption are traders not being ready for controls implemented by EU Member States on 1 January 2021. Irrespective of the outcome of negotiations between the UK and EU, traders will face new customs controls and processes. Simply put, if traders, both in the UK and EU, have not completed the right paperwork, their goods will be stopped when entering the EU and disruption will occur.”
Mr Gove finishes the letter:
“Please emphasise the importance of getting ready. We are confident that if everyone takes action now this will reduce the likelihood of disruption occurring at the border in the future.”
The government statement was keen to stress the role of hauliers in minimising disruption, with Mr Gove saying that the government would be directly contacting haulage companies in the UK and EU, running targeted advertising, publishing an updated haulier handbook, and will launch advice stands at UK service stations. He added that the government are also delivering a ‘Smart Freight’ IT service that would allow drivers and hauliers to complete a border readiness check.
Deal or No Deal, tariff-free trade agreement or otherwise, this does not change the requirement for customs, safety and security declarations. At present, the fear is that traders have yet to come to terms with this fact, with hauliers reporting that many of their customers believe they can just carry on as before if a free trade agreement is reached.
At present, political intelligence providers state that there is an 80% chance of either a No Deal or ‘shallow’ Deal scenario, though an agreement on fishing rights and level playing field may still be possible. However, for political reasons – for instance Conservative Brexiteers, keeping the favour of red wall voters and Northern Ireland – this may not come to fruition.
Regardless, unless traders get their act together before the transition date, there will likely be a two-stage disruption period, on New Year’s Day, and on 1 July 2021, when the UK fully implements its new border processes. At this stage, the traders have known they need to prepare post-transition paperwork for more than two years. It is expected that while a fair number of large haulage companies will be ready, many of those in the unprepared bracket are SMEs and independent businesses.
Why did Tesla shares plummet by $50bn?
Tesla shares (NASDAQ: TSLA) are down on Wednesday after Elon Musk said cheaper and more powerful batteries wouldn’t be available for another three years.
During a live presentation given on Tuesday, hinted towards a cheaper Tesla becoming available which would have five times more energy and six times more power.
Speaking at the event, Musk said the new technology would take three years to implement. Investors did not react well to the news and $50bn was wiped off its stock market value.
“In three years… we can do a $25,000 car that will be basically on par [with], maybe slight better than a comparable gasoline car,” he told his audience.
Casper Rawles, head of price assessments at Benchmark Mineral Intelligence, said that the move would be “challenging”.
“Even with really experienced car manufacturers, we tend to see a very high scrap rate of production in the first couple of years. You can only reduce the cost down to a point,” said Rawles.
Tesla is currently the most valuable car company in the world and its share price has soared over the past four quarters.
Tesla shares closed 5.6% lower and fell another 6.9% in after-hours trading on Tuesday.
The share price (NASDAQ: TSLA) is currently trading -7.32% at 393,16 (1642GMT).
NatWest launches attention-grabbing savings account with ‘3% interest rate’
NatWest (LON:NWG) announced on Wednesday that it had launched a new savings account, for customers with little-to-no savings.
The account can be set up with an initial deposit of between £1 and £50, with a standing order for regular deposits thereafter. What has been grabbing headlines, though, is the account’s seemingly enticing 3% interest rate.
The issue is that this interest rate only applies while an account’s balance is under £1,000, and once your savings surpass that threshold, any sum over that amount are subject to an entirely underwhelming 0.01% interest rate.
NatWest said the new savings account would help consumers create a buffer zone during economic uncertainty, and said it would aid in their efforts to try and help an additional 2 million customers to save with them by 2023.
Speaking on the launch of the new account, Lewis Broadie, a savings expert at NatWest, said: “During lockdown many of our customers started to save for the first time. We are introducing the new digital regular saver to help our customers start and maintain a long-term savings habit which will help them to become more financially secure.”
The news also comes shortly after the popular NS&I Savings Account had its interest rate cut from 1% to 0.15%, while the return on income bonds is set to fall from 1.15% to 0.01%. These announcements prompted popular money-saving expert, Martin Lewis, to Tweet the following:
Unfortunately, it appears the new NatWest account is just another bit of attention-grabbing to get customers through the door, with the interest rate offered on anything-but-minimal savings being just as dismal as those offered by any other savings account or ISA in these difficult times. However, being more positive, Bankrate UK Mortgage Expert, Nisha Vaidya, stated the following: “This is a positive move from NatWest which recognises the financial challenges many people are facing in the context of COVID-19. Incentivising customers to save little and often is a good way of getting people into the savings habit at a time of deep economic uncertainty.” “We know that young people in particular are facing real financial challenges right now – not just because they’ve been hit hardest by job losses, but because soaring property prices have priced many potential first time buyers out of the market.” “While this account is aimed at customers with little or no savings, rather than those trying to grow their existing balances, it’s good to see banks innovate and launch new products that recognise the extraordinary financial circumstances many people are facing.” Alas, if it were my money I’d probably just ignore the hype, or for someone looking for a beginners’ savings account: take a look at HSBC‘s (LON:HSBA) fixed term regular saver’s account, which offers 2.75% on savings up to £3,000.NEWS: NS&I announces unprecedentedly large rate cuts on 24 Nov. Currently best buy across the board. -Income Bonds drop from 1.15% to 0.01% -Direct Saver drop from 1% to 0.15% -Investment account from 0.8 % to 0.01 ISA & Junior ISA similar A devastating blow for savers Share
— Martin Lewis (@MartinSLewis) September 21, 2020
SSP Group expects UK 86% sales decline, European sales remain strong
SSP Group (LON: SSPG) has said it expects second-half sales to be 86% lower than the same period last year.
Owner of Upper Crust and Caffè Ritazza has said sales have been hit due to fall in trading at airports and railways as people are travelling less and working from home.
SSP Group has also warned that it is planning to cut up to 5,000 job losses amid the collapse in sales. After suffering from heavy losses over lockdown, the group said it would cut half of its UK workforce.
“We are now taking further action to protect the business and create the right base from which to rebuild our operations. We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation,” said chief executive Simon Smith.
Revenue is expected to reach £1.3bn.
“Covid-19 continues to have an unprecedented impact on the travel industry and on SSP’s businesses in all geographies,” said Smith.
“In the medium term we expect to see the gradual return of passenger travel to more normalised levels. The actions we are taking to rebuild the business will enable us to emerge fitter and stronger, positioning us to capitalise on future opportunities and delivering long-term sustainable growth for the benefit of all our stakeholders,” he added.
Whilst sales in the UK have dramatically fallen, sales in Europe in Germany and France remain strong.
SSP Group shares (LON: SSPG) are trading +12.34% at 203,00 (1600GMT).
AstraZeneca and GlaxoSmithKline – the Covid-19 vaccine frontrunners to watch
Around the world, pharmaceutical companies and governments are working at record speed to develop a vaccine for the novel coronavirus. There are currently more than 150 potential vaccines in development, with high hopes that an effective product can be introduced to the market within the next year.
The demand for a vaccine has increased since lockdown measures were brought to an end over the summer. With millions of people back at work, children back at school, and services reopening to the public, the threat of the virus sweeping through the population is at its greatest since the peak of the pandemic in the spring.
With pressure mounting, two UK-based biopharmaceutical firms have emerged among the frontrunners in the race to develop a vaccine: AstraZeneca (LON:AZN) and GlaxoSmithKline (LON:GSK).
Both companies have made significant progress in recent months. Despite a brief setback due to an adverse neurological reaction from a volunteer, AstraZeneca and Oxford University’s joint venture is already well into clinical trials, and although GlaxoSmithKline has only just begun its first human study, the unique formulation of its proposed vaccine makes it potentially more effective than others in development.
So, which of the two should investors consider tucking their cash into?
AstraZeneca and Oxford University
The collaboration between Cambridge-based AstraZeneca and the University of Oxford is already a frontrunner in the race to develop a vaccine. Its proposal, named ChAdOx1 nCoV-19, is currently undergoing Phase Three clinical trials on human volunteers, which will determine whether the vaccine has the same effect on humans as it did on laboratory animals during earlier studies. A number of governments have already made their faith in AstraZeneca’s vaccine clear, with the UK, USA and India pre-ordering a total of more than 2 billion doses. Despite a week-long setback after a volunteer fell ill with a neurological condition called ‘transverse myelitis’, independent regulators determined that the trial was safe to resume. The volunteer is expected to make a full recovery. AstraZeneca’s share price wavered when the project was put on hold, with investors (understandably) fearing that their hopes that a vaccine is on the horizon would be dashed. Shares were down a hefty 8% on the morning of the company’s announcement, but quickly recovered once the trials were given the go-ahead to resume. Since then, AstraZeneca’s shares have gained on renewed optimism. On Wednesday afternoon, they were up 2.49% to 8,794.00p, and if all goes to plan then they are likely to keep going up. The company has enjoyed a surge in investor interest over the course of the year, with a 24.67% increase in its share price in the last 6 months alone, and a decent dividend yield standing at 2.48%. Assuming that AstraZeneca’s vaccine avoids any further obstacles, it may well offer a prime investment opportunity for those looking to capitalise on the win-win of a successful vaccine and inviting returns.GlaxoSmithKline and Sanofi
Brentford-based GlaxoSmithKline teamed up with French pharmaceutical firm Sanofi (EPA:SAN) back in April, both boasting a unique take on vaccine composition that has since given the collaboration a competitive edge. Sanofi has offered its experience with protein-based vaccine development to the project, already boasting an impressive track record as the “leading influenza vaccine producer, delivering nearly 200 million vaccines, 40% of all doses worldwide”. GlaxoSmithKline brings its immune system-boosting adjuvants to the table, which have also proved effective in trials for the standard influenza virus. The hope is that the addition of adjuvants to the vaccine could provide more effective and longer-lasting protection against Covid-19 than its competitors. Together, although Sanofi and GlaxoSmithKline might be able to produce a more potent vaccine, their trials are notably behind that of AstraZeneca’s. Human trials only began this month, and results are not expected until December. While this means that a vaccine may be able to be rolled out in the first half of 2021, this estimate is admittedly a little on the lenient side, and AstraZeneca’s vaccine still has the edge in terms of a release date. That being said, investors looking to put their money behind a project which might yield better results further down the line should not be discouraged. Although GlaxoSmithKline has seen its share price fall almost 10% over the past 3 months, this is at least partly due to the – undeserved – but nonetheless dwindling interest as competitors’ vaccine programmes overtake them. The US government has not been dissuaded just yet, with a promise of a minimum of $2.1 billion to “fund development and clinical testing, as well as manufacturing” for GlaxoSmithKline’s project. Assuming clinical trials prove to be a success, the US has already put in an order of over 100 million doses. So while it may be easy to be dissuaded by GlaxoSmithKline’s recent performance on the stock market, investors certainly should not rule it out completely. One of its major competitors, AstraZeneca, has already faced a concerning setback which – although having been reviewed by an independent safety body – may cause problems further down the line once mass vaccination is on the cards. The real attraction of GlaxoSmithKline’s vaccine, however, is its unique formula. The combination of protein-based technology and adjuvants could produce a vaccine that is far more effective than the current offerings, providing potentially much stronger inoculation against coronavirus, and therefore a more successful vaccine overall. GlaxoSmithKline has seen its share price climb 1.47% on Wednesday afternoon, bucking the trend of a week-long depression of 2.96%, but still sits tight on a sunny dividend yield of 5.30%.Why you should invest in a vaccine
Chris Beauchamp, chief market analyst at trading company IG, has some advice about why investors should consider tapping into the race to develop a vaccine: “Pharmaceutical stocks remain popular with investors, and rightly so, thanks to their long-term revenues and excellent dividend yields. In a world where yield is even harder to come by, such stocks will maintain their place at the top of watch lists”. However, Sheena Berry – healthcare analyst at Quilter Cheviot Investment Management – has a word of caution for eager investors: “The first companies to develop available coronavirus vaccines may not necessarily be the long-term winners”. Beyond the obvious benefit of a successful vaccine, Raconteur points out that investors looking for “stocks with a conscience” need not look any further than the top pharmaceutical firms. The coronavirus pandemic has “accelerated” the drive towards ESG stocks, of which pharmaceuticals make up a significant portion, and investors are increasingly contributing their cash to projects which are not only profitable, but are designed with improving people’s lives in mind. For a look at other ESG funds, check out this list of 3 of the most promising offers on the market.Cineworld – three monsters standing in the way of the cinema’s recovery
Speaking to Third Bridge’s Senior Sector Analyst, Harry Barnick, we were able to pinpoint the three main challenges cinema giant Cineworld (LON:CINE) will face going forwards, ahead of the publication of its results on Thursday.
Not able to get people to the box office
First, Mr Barnick points to cinema attendance, limited by both health and safety, and a shortage of big releases by film studios. On the former concern, Barnick stated that with cinemas being constrained by a two-metre social distancing rule, they would only be able to achieve 30% of their maximum capacity. With a one-metre rule in place, they can fill up to half their pre-Covid max capacity levels. However, he also thinks that constraints won’t actually be a huge issue, as average capacity utilisation pre-pandemic was below 20%, and up to 65-70% at peak times. As far as sentiment for cinema reopenings is concerned, a US poll indicated that 33% of people were willing to return to cinemas instantly, while up to 45% said they were slightly hesitant, and 25% said they were too anxious to even consider the idea. With this in mind, having 30-50% of capacity available will likely mean cinemas are able to cater to whatever demand there is. The bigger issue facing attendance, however, is the slim pickings for the 2020 release slate. With Wonderwoman having been postponed for the sixth time the week before last, Top Gun pushed back until 2021 and the Avatar sequel being moved from 2021 to 2022, Barnick thinks the slate could be down 40-45%, which will inevitably damage attendance. The exhibitor reopening schedule intentionally coincided with the launch of Tenet, and while Cineworld and its peers might also benefit from the launch of family film, Soul, in November, the pipeline for the rest of 2020 is fairly blank – meaning there will be few chances to generate momentum going into 2021. As far as geographical disparity in box office recovery is concerned, Barnick says the main disparity is when cinemas reopened, with mainland European cinemas starting up before their UK and US counterparts. While showing primarily old releases, German cinemas began their recovery earlier than their UK equivalents, which does little for Cineworld, seeing as most of their sites are in the UK and US.Cash, or lack thereof
Cineworld’s second dilemma, much like any cinema at the moment, is its shortage of cash and ample debt. The issue here is that rather than declining, costs are actually likely to rise going forwards. First, and less inevitably, because cinemas might invest in new ways to add value to the cinema experience versus online viewing. Then secondly, and more inevitably, cinemas will have to invest in expanding their cleaning and hygiene practices, with more regular cleaning procedures likely to impact a company’s cost line. The main issue as far as cash is concerned, though, is the lack of potential to sell parts of the Cineworld portfolio in order to increase liquidity. The reason for this is that most of the US Cineworld (Regal) estate has already undergone a ‘fairly aggressive’ sale and lease-back agreement drive in order to increase liquidity. In the UK, the majority of the company’s sites are leasehold, and therefore cash generating potential is limited. Despite the lack of opportunity to generate new cash from its sites, though, the company might still opt to save cash by reducing the size of its estate, with Barnick anticipating that Cineworld might reduce its UK estate by 10-15%. The key issue as far as cinema sites is concerned, he says, is the risk of previously-growing independent operators folding. From an M&A perspective, Barnick thinks that, driven by the recent abolition of the Paramount Consent Decrees, streaming services like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) might be interested in picking up the estates of ailing independent exhibitors via bolt-on acquisitions. The reason they’d do this is to diversify their distribution streams and attract high profile filmmakers, who previously might have resisted releasing new films directly onto an online streaming service. Should such developments come to fruition, online services would not only compete with the cinema industry, but would compete with pureplay cinemas, for the cinema industry.(Online) content is king
The third major concern for cinemas like Cineworld is the seemingly unstoppable rise of premium video on demand (PVOD), with not only streaming sites such as Amazon and Netflix, but studios starting their own PVOD platforms, such as Disney Plus. The rise of these PVOD platforms are accompanied by two key concerns. First, that studios such as Disney (NYSE:DIS) forgo theatre releases, and attract people towards their services by reserving high profile releases exclusively for their users. This has been seen with the revival of Mulan skipping cinema screens and being released directly onto Disney Plus, as well as previously adored franchises – such as Star Wars and Lord of the Rings – being taken away from the big screen and turned into rolling series formats on Disney Plus and Amazon Prime respectively. The second structural concern is the shortening of the theatrical window. While Disney has somewhat ironically said they’ll respect the theatrical window, the AMC-Universal deal will see the window shortened from 75-90 days, to just 17 days. This massive gouge out of films being reserved for cinema viewership presents the real possibility of seismically changing the way we consume film content. By shortening the theatrical window to such an extent, cinemas will have to find a way of stopping people from thinking, ‘well, we’ll get it online in two-ish weeks’.The Cineworld outlook
How much these considerations will effect the upcoming Cineworld results is pretty self-intuitive. With Barnick stating that UK cinemas are expecting a market-wide reduction of 45-50% in attendance year-on-year – from 170 million in 2019, to between 80-100 million in 2020 – and lockdown only pumping up the POVD boom, he says the outlook for the remainder of 2020 is ‘pretty bleak’. As far as investors are concerned, the Cineworld debt load and efforts to save cash means they are unlikely to reinstate their dividend, having initially cancelled it back in April. One positive note to finish on, is that 2020 was already expected to be a fairly muted year as far as big releases were concerned. Also, with all things being well, the release of the new James Bond title could provide a revenue boost and string momentum going into 2021, and a year of better things to come (we hope). To see the full interview with Harry Barnick, take a look at our Cineworld podcast.
FTSE on top as global equities lick their wounds after pandemic panic
Slumped in a corner and either trying to forget the previous day, or too battered to recall it, global equities were left adrift on Tuesday, with the FTSE ending up on top of the directionless crowd.
Up over a percent at one point, the FTSE finished the day at plus 0.43%, up to 5,829 points. This followed gains in the afternoon, likely led to a surprisingly amicable PMQs and Boris Johnson restating his commitment to keep the economy open, and avoid entering a second lockdown.
Following close behind the FTSE was the DAX, up 0.41% at the end of the day, up to 12,954. Unfortunately, with the French so far being hit hardest by the Covid resurgence, the CAC lost its initial progress, and finished down 0.40% to 4,772 points.
Also not in the mood to climb during a fairly uneventful Tuesday was the Dow Jones, with the index sitting tight with a 0.088% decline, down to a new seven-week nadir of 27,123 points.
Though there is still time for a Dow recovery later in US trading, the impending election and unresolved big tech reticence imbue US investors with an uneasy feeling.
Signing off something of a quiet Tuesday, Spreadex Financial Analyst, Connor Campbell, speaks on his predictions for a more eventful day of trading tomorrow:
“Tuesday’s been pretty quiet, all told. Wednesday will see the markets face more of a test, in the form of September’s flash manufacturing and services PMIs. The latest readings will give investors a chance to assess whether the global economic recovery is slowing, or if it has stalled out completely.”