Global stocks surge on Biden’s win
Monday morning saw the global stocks jump as investors welcomed the US Presidential election win.
The blue-chip index climbed 94 points, or 1.6%, to 6004 points on Joe Biden and Kamala Harris’ victory over the weekend.
It wasn’t just stocks in London that rose on the back of the news. Japan’s Nikkei stock surged 2% to a 29-year high.
“Financial markets around the world have received a marked boost in the wake of Joe Biden’s victory in the US presidential election, with Japanese shares hitting their highest level for nearly three decades and oil prices also climbing,” said Martin Farrer from The Guardian.
“Stock prices in Europe and New York were also expected to rise sharply on Monday after the president-elect pledged to try to bring unity to the US after four tumultuous years under the Trump administration.
“The Nikkei index in Tokyo led the way with a rise of 2.3% as traders in Asia Pacific got the first chance to give their verdict on the Biden victory declared over the weekend.
“In China, the Shanghai Composite was also up more than 2%, Hong Kong shares rose 1.5% and the ASX200 in Sydney jumped 1.74%,” added Farrer.
In the US, the DAX and CAC surged 1.9% and 1.8% respectively, crossing 12,700 and 5040.
Susannah Streeter, senior analyst at Hargreaves Lansdown, warned that the gains on the FTSE 100 aren’t expected to last amid Brexit trade deals.
“An incoming Biden administration is certainly not going to offer an easy path to a trade deal between the UK and the US and could even determine the shape of relations between Britain and the EU,” she said.
“Joe Biden has already expressed disapproval of proposals for the UK to potentially break international law on certain aspects of the withdrawal agreement, which is likely to concentrate minds at Number 10.”
Pre-Christmas slump on the horizon for UK economy
New surveys of business activity have raised concerns of a pre-Christmas slump due to the latest Covid-19 restrictions. With lockdown 2.0 now in full swing, widespread store closures and thousands back on furlough, business activity has already taken a sharp dive into the negative, according to two separate studies by accountancy firm BDO, and the Chartered Institute of Personnel and Development (CIPD) in collaboration with recruitment firm Adecco.
BDO’s figures showed the first decline in business confidence and output since April, when the economy was still gripped by the first wave of the government’s restrictions, while the latter’s survey revealed that almost a third of employers expect to be making redundancies before the end of the year.
All of this comes despite the government’s attempts to bolster the economy through the winter, with Chancellor Rishi Sunak announcing that the Coronavirus Job Retention Scheme will continue until March and the Bank of England’s £150bn support package designed to cushion the financial blow of the second lockdown.
Gerwyn Davies, senior labour market adviser for the CIPD, commented on the survey’s findings:
“The best that can be said is that the situation is getting worse more slowly. Employment looks set to keep falling and the relatively weak demand for labour means that it is going to be a long and hard winter, affecting young jobseekers in particular”.
Despite this, the slightly more lax nature of the second lockdown should see more companies able to remain open to the public, and with most companies already having shed staff earlier in the year, the number of firms preparing to make redundancies has actually fallen to 30%, compared to 33% over the summer.
That figure is still significantly higher than the 22% of firms who were planning job cuts before the coronavirus struck the UK, and no doubt the 3% difference is of little comfort to the millions who could face unemployment even after managing to hold onto their jobs during the first wave.
BDO said its index of business output – compiled from surveys of more than 4,000 firms – showed that the economy had come on leaps and bounds since a record low of 44.9 was recorded during April. However, with the October figures sitting at 77.09 (well below the 95 threshold for economic growth) and having already slipped from 77.95 in September, it is evident that the UK economy is facing a downhill slope towards the end of the year.
Further figures on the state of the economy are expected to be released this week, but the Bank of England has already warned that the second Covid wave could spark a double-dip recession, with GDP expected to fall 2% in the final quarter. To ice the cake, the Bank still expects an 11% decline in GDP for the year as a whole.
Ant Group’s suspension could wipe $140bn off its value
Last week, business magnate Jack Ma looked set to become China’s richest man with the launch of his new tech venture, Ant Group. Already an icon in the industry as the man behind the world’s largest e-commerce platform, Alibaba (HKG:9988), Ma was set to sell shares in his new company worth about $34.4bn (£26.5bn) on Thursday, in what would have been the largest stock market debut on record. That was, until, Chinese authorities intervened citing “major issues” with the project, and suspended the listing with immediate effect.
The decision to halt the launch sent shockwaves through the rest of Ma’s portfolio, sending Alibaba’s share price down 8.1% in New York on Tuesday after the news broke, and a further 9.6% in Hong Kong on Wednesday. Both drops wiped a colossal $76bn off the value of the company, and Ant Group’s proposed shares would have boosted Ma’s own net worth to over $80bn.
“This deal was not only cleared for take-off, the wheels were literally off the ground,” Drew Bernstein, co-managing partner at Marcum Bernstein & Pinchuk, told BBC News last week.
On Monday morning, Bloomberg reported that China’s decision to suspend the launch could “reduce the fintech giant’s value by as much as $140 billion”, citing analysis by Morningstar Inc. (NASDAQ:MORN). New, tighter regulations imposed by Chinese authorities could “force Ant to raise more capital to back lending and seek national licenses to operate across the country may reduce the firm’s valuation by about half”.
Even though Bloomberg cautions that the estimation is merely that – an estimate – if Ant’s value does halve from its pre-IPO $280bn, it would drive the company down to even less than it was worth two years ago.
Iris Tan, an analyst at Morningstar, told Bloomberg that Ant could face a 25%-50% slip in valuation, if its pre-IPO price-to-book ratio drops to “around the level of top global banks”. In reality, that would mean that Ant could see its valuation slashed by some $140 billion.
Currently, Ant’s stock price is valued at “4.4 times of its book value”, versus just 2 times at comparable global banks, Tan added.
Sanjay Jain, Singapore-based head of financials at advisory firm Aletheia Capital, estimated that Ant’s price-to-earnings ratio could drop to “about 10 times its lending profits, half of the previous target it had assigned to the company”.
That new price would see Ant sink from its initial lofty estimates to be more in line with some of the world’s largest banks, with Citigroup Inc. (NYSE: C) reportedly trading at “about eight times forward 12-month earnings, while DBS Group Holdings Ltd. (SGX: D05) of Singapore is trading at about 12.6 times”.
One of the most apt comparisons could be China Merchants Bank Co. (SHA: 600036), which currently trades at about 10 times its annual earnings.
Mr Bernstein was keen to emphasize that Ma will mostly likely recalibrate his business and attempt a second market debut in the coming months, even after speculation that the temporary suspension cost his own wallet billions.
“The company’s going to have to restructure somewhat. Maybe commit some more capital to the loan division, apply for more licences. Then they’ll be able to come back to market”.
Jobs on the line as Edinburgh Woollen Mill and Ponden Home collapse
More than 2,900 employees are now at risk of losing their jobs after it was announced on Friday that clothing retailer Edinburgh Woollen Mill and homeware suppliers Ponden Home have fallen into administration.
Both brands are owned by EWM Group, which is still negotiating a potential rescue deal that could save its remaining brands – Peacocks and Jaeger – from going under.
A spokesperson for the group announced the collapse with a solemn statement about the impact of the coronavirus pandemic, which had seen its stores close to customers for several months during lockdown.
“Over the past month we explored all possible options to save Edinburgh Woollen Mill and Ponden Home from going into administration, but unfortunately the ongoing trading conditions caused by the pandemic and lockdowns proved too much.
“It is with a heavy heart we acknowledge there is no alternative but to place the businesses into administration”.
Last month it was reported that Edinburgh Woollen Mill had already permanently closed several of its sites in Cumbria and the Scottish Highlands after the company failed to drum up sufficient sales to offset the losses during the pandemic.
Business advisory group FRP Advisory has been drafted in for the ongoing search for buyers as EWM Group rushes to save its remaining brands.
The news comes as the latest blow to the UK high street after dozens of household names have had to close their doors to the public this year.
Edinburgh Woollen Mill had been a familiar face for British consumers since it was launched back in 1947.
Tony Wright, FRP joint administrator, said both Edinburgh Woollen Mill and Ponden Home had been trading well before the pandemic, but that since reopening stores in June they had both struggled to reanimate customer engagement levels.
“Regrettably, the impact of Covid-19 on the brands’ core customer base and tighter restrictions on trading mean that the current structure of the businesses is unsustainable and has resulted in redundancies.
“We are working with all affected members of staff to provide the appropriate support.”
Global equities plateau after an exhausting election week
Sleep? Sorry – don’t know them. As forecast, the US Presidential Election has been drawn-out, dramatic and all-consuming. But, rather than buckle under the strain, global equities spent the majority of the week absolutely soaring.
Rallying at their fastest rate since April, US big tech stocks led the way, with Alphabet rising by 8%; Amazon, Microsoft and Apple posting gains in excess of 9%; and Tesla and Facebook booming over 10% during the week.
Between Wednesday and Thursday, these gains saw the Nasdaq bounce over 6%, while the Dow Jones hiked up by around 3.5%.
Somewhat running out of steam at the end of the week, however, global equities finished lazily. Having recovered all of the ground lost in the previous week, markets opted for a subdued end of the week – with a Biden victory already priced in, and no major COVID developments to speak of.
With this, the Dow fell by 0.35% on Friday, the CAC fell by around half a percent, the DAX dropped by 0.70% and the FTSE 100 remained all but flat as trading came to a close.
Speaking on the flat global equities performance on Friday, Spreadex Financial Analyst, Connor Campbell, commented:
“Exhausted after the giddiness displayed earlier in the week, the news that Joe Biden has likely won Pennsylvania – and therefore the Presidency – failed to move the Dow Jones.”
“Instead the index opened flat, lurking just below the 28,400 mark, in a performance that is in part going to be informed by the fact it has recovered all of last week’s losses.”
“No longer needing to escape the covid-19 depression it found itself in at the end of October, the Dow may now be more hesitant to move higher in the face of the potential recounts and legal challenges that are going to be part of the election aftermath. Already it has been confirmed that there will be a recount in Georgia, a state where Biden is leading by just 1,579 votes, while Trump is pushing for one in Wisconsin.”
Co-op narrows Q3 loss amid “challenging environment”
The Co-operative Bank has released a third-quarter trading update, revealing a “resilient performance in a challenging environment.”
The lender posted a pre-tax loss of £23.5m, which was a sharp improvement from the £80.1m for the same period a year ago.
Whilst losses improved, the Co-op bank is still deep in the red amid the pandemic.
In the nine months to the end of September, the group posted losses of £68.1m, compared to the losses of £118.6m in the same period a year earlier.
Nick Slape, Chief Executive Officer of the Co-op Bank, said, “I’m proud to become CEO of such a stand-out banking brand and to be leading the organisation at a time when we have an important role to play in supporting our customers and our communities.
“This is a challenging time for all banks, given the uncertain economic outlook and continuing low base rate, but whilst we remain loss making as anticipated in our plan, the results also show our resilience as we continue to make significant progress in our turnaround.
“These are difficult times for many people around the country and supporting our long-standing charity partners in the work they do is vital. We are very proud of the initiatives we’re involved in to tackle youth homelessness, to raise awareness of economic abuse and to support co-operative businesses across the UK. As the backdrop remains difficult in the months ahead, we are committed to playing our part and doing as much as we can to make a difference to the communities around us.
“As we face into this new phase of the pandemic, I would like to thank our colleagues for their commitment in supporting our customers, and to reassure all our customers of our support at this uncertain time.”
The bank saw an increase in mortgages for the third quarter, which was helped by Rishi Sunak’s stamp-duty holiday. The bank lent £530m in mortgages over the last quarter.
Deloitte fined by FRC for audit failures
Deloitte has been fined £362,500 by the Financial Reporting Council (FRC) after the company failed to relate to the audit of a former client’s defined benefit pension scheme.
Deloitte did not ensure that the work carried out by the Engagement Quality Control Review (EQCR) was properly documented. The FRC also said that the company did not obtain sufficient audit evidence to substantiate the cash holding of the client’s defined benefit pension scheme.
The former client in this case has not been named by the FRC.
“We acknowledge and regret that aspects of our audit work for this entity did not comply with the relevant standards. However as the FRC has recognised, these did not call into question the truth or fairness of the financial statements in question,” said a spokesperson from Deloitte.
“Audit quality remains our priority and we continue to enhance our audit quality processes and to seek improvement across all of our work.”
Claudia Mortimore, who is the Deputy executive counsel to the FRC commented: “The proportionate sanctions reflect the failures by the respondents to obtain sufficient appropriate audit evidence and to properly document work in significant areas of audit risk, but also recognise the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements.”
NAO: Government has failed to prepare Brexit borders
The National Audit Office (NAO) has published an 85-page report, highlighting the government’s failure to prepare post-Brexit borders.
Whitehall’s spending watchdog slammed the UK government for failing to prepare for Brexit and the impact this will have on for British businesses.
“Some of this uncertainty could have been avoided, and better preparations made, had the government addressed sooner issues such as expanding the customs intermediary market, developing a solution for roll-on, roll-off traffic [and] upscaling customs systems,” said the NAO in a report released today.
According to the watchdog, the “reasonable worst-case planning assumptions” means that between 40% and 70% of lorries that are travelling between Europe and the UK will not be prepared for the new border controls.
There is still significant uncertainty over whether the correct infrastructure will be in place in time for July 2021, when there will be full import controls on goods coming from the EU.
Gareth Davies, the head of the NAO, said: “The 1 January deadline is unlike any previous EU exit deadline – significant changes at the border will take place and government must be ready.
“Disruption is likely and government will need to respond quickly to minimise the impact, a situation made all the more challenging by the Covid-19 pandemic.”
A UK government spokesperson said: “We are making significant preparations to prepare for the guaranteed changes at the end of the transition period – including investing £705m to ensure the right border infrastructure, staffing and technology is in place, providing £84m in grants to boost the customs intermediaries sector, and implementing border controls in stages so traders have sufficient time to prepare.
“With fewer than two months to go, it’s vital that businesses and citizens prepare too. That’s why we’re intensifying our engagement with businesses and running a major public information campaign.”