Good morning,
Comments from China’s President Xi Jinping seems to be moving markets just as we go into the weekend. He has expressed a willingness to do a deal, with the caveat that China is willing to retaliate if necessary. I’m not sure this really counts as news though as it sounds more like a description of the long standing status quo. Nonetheless, we have seen some strength in the FTSE100 as a result, which is largely comprised of trade-sensitive oil stocks and miners. The index is up over 1% this morning, erasing losses from the previous two sessions.
Link: Reuters
Overnight it was widely reported that brokerage giant Charles Schwab is close to announcing a $26bn deal to acquire rival TD Ameritrade, which would create a business handling more than $5trn in assets. There has been speculation that a deal in the space was coming, after Schwab’s move last month to scrap its trading commission fees. This price cut was quickly followed by Ameritrade and other rivals E*Trade and Fidelity. Ameritrade lost an estimated $1bn in annual revenue through scrapping commission fees, although analysts had been anticipating that the much smaller E*Trade was the more likely target for a buy. If the reports prove to be true, Schwab may still face a tricky battle with regulators to get the deal through. Charles Schwab and TD Ameritrade’s share prices closed 7.3% and 16.9% higher on Thursday respectively, while E*Trade finished 9.3% lower.
Victoria’s secret? Losing money
There were some bright spots for equities. Leading the S&P 500 on Thursday was fashion retailer L Brands, which enjoyed a 10.1% share price pop despite posting a mixed set of results. Its shares are still down more than 40% over the past year. The company is facing pressure from activist investor Barington Capital, which has criticized the financial performance of its Victoria’s Secret brand in contrast to the growth of Bath & Body Works. In a public letter in May, Barington suggested the company explore spinning off the individual brands and shake up its board with more independent directors. CEO Les Wexner’s ties to Jeffrey Epstein have also come under scrutiny.
S&P 500: -0.2% Thursday, +23.8% YTD
Dow Jones Industrial Average: -0.2% Thursday, +19% YTD
Nasdaq Composite: -0.2% Thursday, +28.2% YTD
Tobacco firms rally on US regulation relief
Despite some big winners on Thursday, including a 9.1% share price gain for British Gas owner Centrica and a 3.9% pop for British American Tobacco, the FTSE 100 fell by 0.3%. Like their cousins across the pond, mixed trade news dampened investor optimism. Figures were also released by the Office for National Statistics revealing that public sector net borrowing hit its highest level in five years in October. BAT and rival tobacco company Imperial Brands climbed on the news that US regulators have abandoned plans to curb the amount of nicotine allowed in cigarettes. At the bottom end of the pile, chemicals firm Johnson Matthey’s shares sank 7.1%, after it reported a drop in profits despite a revenue increase. Royal Mail shares were hammered too, falling 14.2% after the company warned that potential strike action could push it to a loss. The group also cut its interim dividend – although this fits with a dividend policy it set out earlier in the year.
FTSE 100: -0.3% Thursday, +7.6% YTD
FTSE 250: -0.5% Thursday, +16.4% YTD
Stocks to watch
Foot Locker: Footwear retailer Foot Locker has had a tough 2019. Its shares are down more than 20% year-to-date after posting a disappointing set of results in May that it has yet to recover from. The firm reports its Q3 earnings today; analysts are split between buy and hold ratings on the stock, with an average 12-month price target of $47.50 versus its current $41.46. Foot Locker has been closing stores this year and spending to upgrade its remaining locations in an effort to improve margins.
J.M. Smucker Co: Ohio-based Smucker, which makes jam, peanut butter and other food products, will report earnings today. It has been a year of boom and bust for the company; its share price climbed more than 35% early in the year to a peak of over $127, before falling back to the current level of $104. Its last set of earnings in August disappointed, with a decrease in sales and profits, and a cut in its full-year guidance. Analysts are split between hold and sell ratings, with an average 12-month price target roughly in line with its current value.
Charles Schwab, TD Ameritrade, E*Trade: With the announcement of a Charles Schwab-TD Ameritrade deal reportedly imminent, these three firms will be the ones to watch today. Confirmation of a deal, the purchase price and any comments from the leaders of the companies would likely result in further share price moves, as would any news contrary to Thursday’s reports. Morningstar analyst Michael Wong said in a note that the rumoured $26bn price tag is below his firm’s fair value estimate for TD Ameritrade, but that “it may be reasonable because it’s an immediate payout in a rapidly changing industry.”.
Crypto corner
Heavy selling of cryptoassets was seen overnight and this morning, with Bitcoin dropping to its lowest level in a month. The world’s most popular crypto plunged some 8% in one day, down from around $8,040 yesterday to trade at $7,371. It has recovered some ground this morning, trading at $7,497 at the time of writing.
Ethereum and Ripple were similarly impacted, Ethereum sliding 10% in a single day from $172 to $155 were it currently resides. Ripple fell from a peak of $0.25 to its current level around $0.24. The sell-off means Bitcoin has fallen for seven days straight, with traders blaming low volumes and citing attractive returns from traditional assets.
All data, figures & graphs are valid as of 21/11/2019. All trading carries risk. Only risk capital you can afford to lose.
—
Kind regards,
Adam Vettese
UK Market Analyst
Your Social Investment Network
www.eToro.com
eToro (EU) Ltd, authorised and regulated by the Cyprus Securities Exchange Commission(CySEC) under the license #109/10.
eToro (UK) Ltd, authorised and regulated by the Financial Conduct Authority(FCA) under the license FRN 583263.
eToro AUS Capital Pty Ltd, is the holder of an Australian Financial Services Licence (AFSL) 491139 issued by the Australian Securities and Investments Commission (ASIC).
The wallet is provided by eToro X Limited (“eToro X”). eToro X is a regulated DLT provider licensed by the Gibraltar Financial Services Commission under the Investments and Financial Fiduciary Service Act with Licence FSC1333B.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results. CFDs are leveraged products and carries high risk to your capital.
This email message and any attachments there to are confidential and/or privileged and/or subject to privacy laws and are intended only for use by the addressee(s) named above. If you are not the intended addressee, you are hereby kindly notified that any dissemination, distribution, copying or use of this email and any attachments thereto is strictly prohibited. If you have received this email in error, kindly delete it from your computer system and notify us at the telephone number or email address appearing above. The writer asserts in respect of this message and attachments all rights for confidentiality, privilege or privacy to the fullest extent permitted by law. Thank you.