The FTSE 100 made a tepid start to the week on Monday, ending just about in the green and falling below earlier highs, as caution prevailed ahead of the US presidential election.
The FTSE 100 index closed up 7.09 points, or 0.1%, at 8,184.24. The FTSE 250 ended down 18.45 points, or 0.1%, at 20,461.29, and the AIM All-Share closed down 3.63 points, 0.5%, at 735.37.
The Cboe UK 100 ended up 0.1% at 821.08, the Cboe UK 250 closed down 0.1% at 18,069.09, and the Cboe Small Companies ended up 0.1% at 16,376.14.
London’s blue-chips outperformed European peers. The CAC 40 in Paris and the DAX 40 in Frankfurt both fell 0.5%.
In New York at the time of the London close, the DJIA was down 0.7%, the S&P 500 was 0.2% lower, and the Nasdaq Composite fell 0.1%.
This week sees the US presidential election on Tuesday, followed by central bank meetings in the UK and US on Thursday.
Deutsche Bank noted the race between Vice President Kamala Harris and former President Donald Trump is a near dead heat – both at the national level and within the seven swing states that will decide the outcome of the electoral college.
The broker noted Trump’s 2016 victory came down to a roughly 78,000 votes in Pennsylvania, Michigan and Wisconsin, while Joe Biden’s win in 2020 hinged on 43,000 votes in Georgia, Arizona and Wisconsin.
JPMorgan noted the election has been a source of policy uncertainty for businesses and investors for the better part of this year.
‘Clearing this hurdle should help improve policy visibility, reduce volatility, and increase capital flow,’ it suggested.
JPM sees a ’Red Sweep’ as the most positive for risk into year end on prospects of pro-growth policies and deregulation across industries, while a ’Blue Sweep’ would likely be negative for the market.
A surprise poll over the weekend showing Harris leading Trump by 47% to 44% in Iowa saw the dollar lose ground.
Analysts at Brown Brothers Harriman said the poll delivered a blow to the ‘Trump Trade’ because Trump won Iowa by solid margins in 2016 and 2020.
‘We doubt that ruby red Iowa will flip blue this week, but the fact that it‘s so close spells trouble for Trump in the battleground states.’
The pound was quoted at $1.2972 at the London equities close on Monday, compared to $1.2949 at the close on Friday. Sterling has now recouped a large chunk of the losses seen in the aftermath of last Wednesday’s budget.
The euro stood at $1.0889 at the European equities close on Monday, up against $1.0847 at the same time on Friday. Against the yen, the dollar was trading at JP¥151.94, down compared to JP¥153.02 late Friday.
On Thursday, the Bank of England and US Federal Reserve will announce their latest interest rate decisions. Both are expected to lower rates by 25 basis points.
Simon French at Panmure Liberum observed the tricky balance the Bank of England needs to strike.
‘Given the modest turbulence in UK debt and currency markets that followed the budget this week’s interest rate decision has become trickier than was expected.’
‘The Bank of England risks being dragged into an arena it hates to be - politics. If it decides to cut interest rates the Bank risks accusations of being in the pocket of a government already worried about high interest rates. By contrast should the Bank hold policy rates unchanged it risks further volatility in the cost of UK government borrowing. It is an unenviable choice for an independent central bank.’
Nonetheless, most economists expect the BoE to cut interest rates to 4.75% from 5.00%, the second downward move this year. However, a slower cutting path is seen thereafter.
On London’s FTSE 100, banks were a firm feature with NatWest, up 2.6%, lifted by positive broker comments.
Keefe Bruyette & Woods raised the UK lender to ’outperform’ with a price target of 440 pence. Peel Hunt was also positive, increasing its share price target to 450p.
NatWest has all ‘engines firing’, according to Peel Hunt.
‘NatWest trades at a premium to UK clearing bank peers, which in our view is justified by current momentum, the scale of earnings upgrades, profitability, and low direct exposure to certain UK and regulatory issues which are causing uncertainty for some other banks.’
Lloyds shook off recent weakness to close 1.2% higher, while Barclays completed a good day for UK high street banks, also gaining 1.2%.
Elsewhere, Frasers rose 2.0% after RBC Capital Markets upgraded to ’outperform’ from ’sector perform’.
‘We think Frasers’ current valuation fails to discount the likely resilience of its sports retail business, its property value and its strategic stakes, for instance in Hugo Boss,’ analysts at the broker said.
A rise in the oil price also supported London’s blue-chip index with BP and Shell up 1.4% and 0.8% respectively.
Brent oil was quoted at $74.70 a barrel at the London equities close on Monday, up from $73.64 late Friday.
On Sunday, eight members of the Opec+ group of oil-producing nations said they were extending supply cuts until the end of December.
The move is aimed at boosting oil prices amid uncertain demand and accelerating supply, with an eye on the imminent US presidential election.
Stephen Innes at SPI Asset Management called the move move a ‘curveball’, delaying the much-anticipated December production boost by a month, reflecting the group’s ‘delicate dance’ with volatile demand and fragile economic outlooks.
‘This strategic decision...underscores just how much the group is feeling the pinch as faltering demand in China and a growing supply wave from the Americas cast a long shadow over the market,’ Innes added.
On the FTSE 250, Burberry climbed 6.0% after a report suggested that Italian luxury goods firm, Moncler, is considering a bid.
According to an article published on Sunday in the specialist luxury online publication Miss Tweed there is ‘growing industry chatter’ that Moncler is mulling a bid for Burberry considering the latter’s significant drop in value over the past year.
In the past 12 months shares in Burberry have fallen 49%.
The report noted Moncler’s appetite to turn Burberry around and potential supply chain synergies between the two fashion brands.
Miss Tweed said any deal would likely involve a mix of cash and shares given that Moncler does not have sufficient cash to be able to buy Burberry.
Gold was quoted at $2,735.26 an ounce at the London equities close on Monday against $2,741.43 at the close on Friday.
Tuesday’s local corporate calendar sees full-year results from Primark owner AB Foods and online retailer, Asos. Coca-Cola Europacific Partners and engineering firm Weir are due to release trading statements.
The economic calendar sees an interest rate decision in Australia, the BRC retail sales monitor in the UK, a slew of composite PMI releases plus the US election.
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