Must read: the pound, NatWest, IAG, Brazil, gold, oil, Royal Mail, HSBC
31st October 2022 09:04
by Victoria Scholar from interactive investor
The FTSE 100 is on track to close October higher as European markets open flat, says Victoria Scholar.
GLOBAL MARKETS
European markets have mostly opened around the flatline with the FTSE 100 trading very modestly in the red. After a sell-off on Friday on the back of disappointing quarterly results, NatWest Group (LSE:NWG) shares are rebounding this morning to trade near the top of the FTSE 100 after the analyst teams at Barclays and Credit Suisse raised their price targets on the stock. This is lifting other companies in the sector such as Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC), which are rallying in NatWest’s slipstream.
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After a turbulent time for UK politics and markets, the pound and the FTSE 100 are on track to close the month higher. Sterling has rallied by more than 3.5% over the past month, having rebounded more than 8% from the post mini-budget nadir. British Airways’ parent company International Consolidated Airlines Group SA (LSE:IAG) is the best-performing stock of the month so far up by more than 15% thanks to a bullish update midway through October, which sent shares sharply higher.Â
Although many Asian markets rallied overnight, the Hang Seng and the Shanghai Composite suffered in China overnight after its official manufacturing PMI hit 49.2, falling short of expectations and coming in below the key 50 boom-bust divide.Â
The Brazilian real is rallying after left-wing Lula da Silva made a historic comeback to reclaim the presidency, defeating the nicknamed ‘Trump of the Tropics’, incumbent leader Jair Bolsonaro.
Despite shaky earnings from the US tech sector, Apple Inc (NASDAQ:AAPL) managed to buck the negativity posting its best one-day gain in over two years, lifting the S&P 500 and the Nasdaq Composite, which both closed the week higher. The Dow is on track for its best week since January 1976 ahead of the Federal Reserve’s next rate decision on Wednesday when it is expected to hike by 75 basis points. In a busy week for central banks, the Bank of England is also forecast to raise rates by 0.75 percentage points to 3%, which would be the biggest hike since 1989 as it desperately looks to put a lid on inflation.
Despite the geopolitical and economic uncertainty, rising interest rates and US dollar strength have been weighing on gold, which is poised to log its seventh consecutive monthly loss. The greenback’s appreciation has also been weighing on third-quarter US corporate earnings which are expected suffer a $10 billion hit from the currency effect.
OIL
After two consecutive weeks of gains buoyed by record US oil exports last week, Brent and WTI are under pressure this morning as Covid-19 restrictions in China widen, raising concerns about slowing demand from the world’s second-largest economy. Beijing continues to pursue its draconian zero-tolerance to Covid approach, despite its detrimental impact on China’s economy with clear signs of a slowdown already emerging.
Later today, OPEC releases its 2022 world oil outlook report for clues into the cartel’s views on the strength of global oil demand and consequently the extent to which it may limit production. OPEC+ has helped push up oil prices lately with Brent crude enjoying gains of more than 11% over the last month.
This year’s strength for oil helped to drive record-breaking results for Exxon Mobil Corp (NYSE:XOM) on Friday with third-quarter profit hitting $20 billion, nearly matching Apple Inc (NASDAQ:AAPL)’s earnings and sharply outpacing Wall Street’s forecasts. Chevron Corp (NYSE:CVX) also achieved a strong earnings’ beat with net income surpassing $11 billion.
ROYAL MAIL
Members of the Communications Workers Union have cancelled their next planned strike action against Royal Mail (International Distributions Services (LSE:IDS)) over pay and conditions across the next fortnight. It follows a legal letter from the postal service with walkouts involving more than 115,000 workers set to resume on Saturday 12 November.
Although this is a short-term reprieve for Royal Mail, helping to alleviate some pressures on the company’s ability to deliver its services, longer-term the tensions between workers and the postal service remain. Adding to the sense of frustration among workers, earlier this month, Royal Mail announced plans to axe 10,000 jobs in a desperate attempt to stem losses.
The postal service has been struggling with a perfect storm of heavy strike action, a structural decline in letter demand, a fading pandemic parcel boom, pressures from cost inflation and an onslaught of dynamic competitors to the market. While its international business GLS has been robust, its domestic service has struggled with chair Keith Williams warning in July that the business is losing £1 million a day.
Investors have had a tough time with shares down almost 40% over the last six months. However, the strike delay announcement has sent shares in Royal Mail sharply higher by more than 6% this morning.
National Bank of Canada and Canadian Imperial Bank of Commerce have reportedly dropped out of the race for HSBC’s Canadian operation, which is estimated to be worth between 8 and 10 billion Canadian dollars. However according to The Globe and Mail, Bank of Montreal is still in the running as a potential suitor.
HSBC Holdings (LSE:HSBA) has been reviewing many of its business lately as it looks to trim the fat and focus on more profitable operations. Despite speculation, HSBC confirmed it will be keeping its Mexico business. However, it sold off its Greek retail bank and its French retail business and is now potentially on track to offload its Canadian business as well, which could result in a cash windfall. There have been calls from its largest shareholder Ping An to split up its Asian and Western operations, but HSBC remains reluctant.
Shares in HSBC have underperformed the sector this year with the stock falling heavily last Tuesday after quarterly pre-tax profit slumped by 42%.
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