Morning market comment: FTSE, US elections, UK consumer spending and ABF’s earnings release

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FTSE in the red

The FTSE is sliding into the red this morning as are most European markets ahead of what is likely to be a cautious day in the US as the country goes to the polls. A mixture of positive results from mid-tier companies did little for the London index which was pulled down by supermarket Morrisons and a number of consumer companies including hotels and betting firms. Sterling is holding up against the euro and the dollar which is moving in a tight range ahead of the US midterms.

US elections: will there be a changing of the guard in Congress?

President Trump is on a last-minute tour of the country, trying to shore up support for Republicans who are in some danger of losing seats in the Senate and the House of Representatives on Tuesday, according to US polls. Businesses are keeping a wary eye on the developments as a number of Trump’s policies, including massive tax cuts, had fuelled a nearly 30% rally in the stock market this year. But looking at past situations where a Republican president ended up with a Democratic majority in Congress, stock markets still tended to move higher rather than remain capped, despite the initial scepticism. Whichever way the US elections pan out there are still underlying factors in the US economy that will cause the markets to slow down – October’s bond sell-off being a reminder that inflation is high, interest rates continue to rise and that headwinds are gathering for the US economy.

UK consumer spending

The doom and gloom mood that swirls around the UK high street continues even when statistics show data that is slightly better than expected. Investors are still scared by the thick flow of negative news this year that involved mass shop closures and bankruptcies. However, October seems to have brought some light to retailers as consumer spending perked up from September, although the increase was not much compared with the heady days of rises in retail spending before Brexit became a serious concern. Investors didn’t take favourably to the report from Morrisons supermarket that its sales rose by 5.6%, mainly because a closer look revealed that only a small part of that increase came from shop sales while the rest was fueled by wholesale activity. Retailers are now pegging their hopes on the massive spendfest that is Black Friday on 23 November and then the run-up to Christmas.

Imperial Brands proved themselves as a solid income generator

Imperial Brands are living up to their reputation as a solid income generator. The dividend is up a pleasing 10%, underpinned by a better-than-expected revenue and cost performance. Vaping revenues are growing in line with management expectations in a market that still holds much promise for Imperial Brands. Winning new vaping customers won’t be easy if pure-play competitors continue to land plum distribution deals, such as the one Juul signed with Sainsbury’s last week.

That said, a new regulatory crackdown on the marketing of vaping products to children is playing into the hands of big tobacco companies, hedged with a more diverse product offering that still includes popular traditional cigarette brands.

Associated British Foods: Primark takes up sugar’s slack

Sugar earnings may be under pressure, but this is still a sweet result from Associated British Foods. Overall group earnings have beaten market expectations, as a strong performance from other divisions such as Primark take up sugar’s slack. Like-for-like sales at Primark have slipped a little more than expected, but the fall mostly owes to frigid weather conditions crimping sales in Northern Europe. Crucially, Primark’s UK business continues to go from strength-to-strength and the retailer’s overall operating margin, at 11.3%, has come in comfortably ahead of company guidance of 11%. A big question on investors’ minds is whether management can replicate Primark’s success at home in the US. So far, the signs are promising.