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FTSE 100 falls slightly as traders wait nervously on weekend Brexit talks

Airbnb IPO "pop" triggers soul searching about US tech valuations

<p>Andrew Bailey: does he still think no-deal is worse than Covid?</p>

Andrew Bailey: does he still think no-deal is worse than Covid?

By @ArmitageJim
11 December 2020

he FTSE 100 was set for slight falls today as investors held back from taking big positions ahead of the weekend’s crunch talks on Brexit.

With the Prime Minister urging the public to prepare for a no-deal yesterday, sterling fell which had the effect of boosting the FTSE, particularly dollar earning stocks.

While the EU began announcing sensible emergency plans to keep aviation and ports working after 1st January, the long term outlook was looking grim to those believing the two sides were not just posturing ahead of striking a deal.

Many in the markets believe pragmatism will prevail and the negotiators will pull an agreement out of the bag at the last minute, although the teams themselves were cautioning that the two sides were still far apart on many key issues.

The FTSE 100 was set to fall 10.7 to 6587.7 in early trading according to IG Index pre-market prices, with a similarly flat start predicted for European markets ahead of a jittery weekend.

The outlandish "pop" in Airbnb shares on its IPO left many investors jumpy at the state of US technology stock valuations

Shares in the group had already been priced way above an increased indicative range, but more than doubled when trading started yesterday, closing at $144.71 after being priced at $68.

That means it is valued at $86 billion despite never having made an annual profit.

Academics and fund managers queued up to warn of the similarities in current markets to the dotcom bubble of 2000 with share prices divorced from reality. 

While valuations do look toppy, others countered that the tech companies of today are strong businesses with proven paths to profitable growth. 

On a quarterly basis, Airbnb has made a profit, and it is the lone global player in a fast growing market. However, it now has to deliver on some herculean growth assumptions if it is to justify its share price.

A growing minority of analysts are calling on central banks to begin reversing their super-easy monetary policy measures to stave off an inflation surge and asset price bubbles. 

Much of the leap in equities is down to the feeling of “TINA” - there is nothing else - meaning no other assets are offering any yields because monetary policy is so easy. 

Equity valuations are based on the assumption that central banks will not change that stance for a long time, creating an environment for 2021 where we have a rapid bounceback in economies from Covid yet continued near-zero interest rates and quantitative easing.

That still appears to be the most likely outcome, in the UK at least, because the economy remains under the anaesthetic of furlough schemes and state-backed Covid loan support for businesses.

But some fund managers are getting twitchy about whether current stock market highs are displaying too much confidence, and shares will fall when investors’ performance statistics for this quarter are in the bag.

The Bank of England’s financial stability report out later could give further clues on its thinking. Governor Andrew Bailey has gone on record saying a no-deal Brexit will be worse for the UK economy than Covid-19, so the timing could not be more important for the report and his comments to the Press.

Yesterday, the Bank helped the banking sector with an end to the ban on their paying dividends. As CMC’s Michael Hewson asked: “If a no deal is as damaging as Andrew Bailey says it could be, surely the Bank of England would have delayed any decision on this until next month?”

Numis today issued a big Buy note on Jupiter Fund Management, although this was less due to the macro market conditions and more in recognition of its decision to close some of its smaller funds and transfer some to outside fund managers. 

The move was seen as a signal that it was taking action on its poorer performers.

While it reckons Jupiter has seen a further £250 million of clients’ money coming out of its funds, its performance fees will have more than offset that due to positive performance of its funds. It set a target price of 300p for Jupiter against today’s 266p.

Oil stocks have been benefiting from the rising crude oil price as traders bet on a global economic recovery. Brent crude climbed above $50 a barrel for the first time since March yesterday. This morning it was at $50.24 - a far cry from the sub-$20 levels of April.

BP, Shell and smaller oil stocks will doubtless be in the spotlight again today.

GlaxoSmithKline could see its shares come under pressure after announcing a delay to its Covid vaccine trials with Sanofi after finding the medicine only seemed to work well in people aged 18 to 49. Older patients’ immune response was low, probably due to an insufficient concentration of the antigen.