Airlines rebound helps to buoy European markets

Europe

It’s been a slightly better day for markets in Europe, shrugging off a weak Asia handoff, with some decent gains for travel and leisure, which has enjoyed a respite after Ryanair announced it was increasing its 5-year growth target for passengers to 225m, a 50% increase on 2019 levels. That said progress has been difficult with weakness in US markets pulling the FTSE100 and DAX both off their highest levels of the day.

The airline says it hopes to achieve this with the acquisition of a fleet of new Boeing 737 MAX aircraft, helping the shares to post their best one-day performance this year.

Ryanair’s optimism, along with reports that the UK government is set to simplify the classifications on the travel restriction list to a binary choice between green and red, halving the red list in the process, and opening up a whole range of new countries that will be open to overseas travel. This has rippled through the rest of the sector, with easyJet also posting its best one-day gain in months, while the likes of Wizz Air and IAG also higher.

Rolls Royce, along with BAE Systems is also higher in the wake of last night’s announcement of a nuclear submarine deal between the UK, US and Australia, with both companies likely to be in line for a good chunk of the work.  

Ashtead is leading the gainers after announcing a rise of 21% in Q1 revenues, and an increase in operating profits of 53% to $477m

It’s been a tough time over the last five years for the UK construction sector, however for Kier Group there finally appears to be some light at the end of the tunnel, after the company reported a pre-tax profit of £5.6m for the current fiscal year, compared to last year’s loss of £225.3m.

Annual revenues were lower than last year, falling back to £3.3bn, however operating margins more than doubled from 1.2% to 3%. In July the company said that it was hoping to deliver annual revenues of between £4bn and £4.5bn, putting it back to levels last seen in 2018, with a full year operating margin of approximately 3%. The company has maintained this outlook, though they have adjusted their margin expectations higher, to 3.5%, sending the shares higher.  

More importantly with the proceeds of the recent capital raise and sale of Kier Living, the company is now in a much better cash position as a result of the £350m in cash proceeds, and turned cash flow positive to the tune of £93m.

The takeover of Vectura by Philip Morris International moved into the final stages today after PMI announced it had acquired or received acceptances for 74.8% of the shares in issue, above the 50% it needs to get the deal through. Rather predictably the impending closure of the deal has prompted further criticism from the likes of smoking charities and medical groups, and while the optics are certainly difficult given the history of PMI, the company’s deeper pockets could well accelerate progress in the areas where it is most needed. Sometimes you have to accept the world as it is and not as you would like it to be, and Vectura is working on a range of medicines and devices to deal with breathing problems, especially with the prevalence of Covid-19. Surely that’s where the priorities should be.   

THG’s latest results have seen the company post a 44.7% rise in H1 revenues to £958.8m, with the beauty division being a notable outperformer, contributing a 59% rise year on year, while nutrition was the weakest division with a 30.2% gain.

Of those revenues, THG Beauty turned over £460.8m, with the company saying that they were looking to spin off the beauty business sometime next year in order to maximise shareholder value, as well as starting the process of creating separation for all of its trading divisions. While revenues have seen a big uplift, losses increased to £81.3m, compared to a loss a year ago of £49.9m.   

Having split off from Travis Perkins a few months ago Wickes H1 results have seen the company post a 32.5% rise in revenues to £812m, with profits before tax rising to £35.7m, a decent improvement on a £5.5m loss a year ago.

On the face of it Superdry full year results don’t look that great when compared to the revenue the business generated a year ago. A 21% fall to £556.1m, as well as lower margins, which fell to 52.7% would normally get punished. The pandemic has certainly done a lot of damage due to the lower footfall in the high street, however Superdry is not unique in that and the shares are already well down from the heady peaks of a few years ago. That said they have held reasonably well so far this year, and losses have improved from a year ago, coming in at -£37m, compared to a -£167m loss a year ago. Current trading was also encouraging with sales ahead by 1.8% compared to a year ago, helping the share to recover from 5-month lows.

On the downside, basic resource stocks are lagging, on the back of lower metals prices.

US

US markets have struggled to move higher, despite a big improvement on US retail sales in August, as well as jobless claims that only saw a modest increase despite the disruption caused by hurricane Ida.    

The biggest drag appears to be coming from the Nasdaq, which appears to be suffering on the back of the rise in US 5 year yields, relative to 2 year yields which is back at a two month highs.  

Casino stocks have continued to come under pressure after facing further selling in Asia trade, with Wynn Resorts, MGM and Las Vegas Sands all slipping back on the open, although MGM is holding its own. Beyond Meat shares have also slipped back on the back of a broker downgrade.  

On the upside DoorDash shares have surged to six-month highs, after being upgraded by BofA, on the back of higher credit and debit card spending data for restaurant transactions.  

FX

The US dollar has gone on a bit of a run today, reversing the modest weakness of yesterday, with today’s better than expected US retail sales for August, which have given it an additional boost ahead of next week's Fed meeting. A rise of 0.7% ran counter to expectations of a decline of -0.7%, although a revised July reading of -1.8% tempered some of the gains. Weekly jobless claims rose slightly to 332k, from 312k, with most of the rise coming about as a consequence of the disruption caused by Hurricane Ida.

The biggest gains for the US dollar have come against the Swiss franc and the euro, with the euro posting a new low for September, and the greenback hitting a two-month high against the franc.  

Commodities

Crude oil prices are cooling off a little today after some big gains over the past few days. The rebound in the US dollar appears to be taking some of the heat out of recent gains, as hurricane Nicholas starts to blow itself out, and US energy companies start to restore production capacity. Natural gas prices in the US are also starting to come back off their highs.  

Metals prices have taken a bit of a kicking with the declines being accelerated by the better than expected US economic numbers, which have pushed the US dollar, as well as treasury yields higher.

While gold prices are under pressure, and have hit one-month lows, silver prices are getting slapped even harder.

Copper prices have also reversed yesterday’s gains, on the back of weakness in Asia markets, as well as a stronger US dollar.