Markets subdued but volatility up, and Rolls-Royce still biding its time with regards to an equity raise

“Markets continued to tread water ahead of a speech later today from Federal Reserve chairman Jerome Powell,” says Russ Mould, Investment Director at AJ Bell.

“Investors wants guidance on how the Fed might push inflation higher and what that means for monetary policy going forward.

“Interestingly, the VIX measure of implied stock market volatility jumped 6% to 23.36 despite US markets having enjoyed a fairly decent session yesterday. The VIX typically rises when markets are falling. The latest action could suggest investors are becoming more nervous about the pandemic continuing to cause economic turmoil and also potentially about the upcoming US Presidential election.

“The FTSE 100 dipped 0.4% to 6,023 with energy, financials and telecoms leading the market down. Investors found better luck with consumer-facing companies and tech stocks.

“Most of the main European markets were down by a small amount, although Amsterdam’s AEX index bucked the trend with a 0.1% gain.

“Brent Crude oil prices held firm at $45.70 per barrel amid US output cuts as Hurricane Laura made landfall in the south-west Louisiana.

Rolls-Royce

“The smoke signals from Rolls-Royce have been fairly clear – it needs to do something to prop up its balance sheet and market speculation has long pointed towards a very large equity raise. The company continues to say it is weighing up options but there is nothing concrete about a rights issue.

“It’s an odd game to play. The company would be better off making some hard decisions now with regards to issuing new shares, particularly while investors still seem happy to back companies needing more cash during the pandemic. Approximately £20 billion has been raised by London-listed companies since March, of which nearly half is from 10 stocks in the FTSE 100.

“Asset sales will help Rolls-Royce in the short-term and it will also save money through large job cuts. But it is clearly going to be a tough road ahead, which might explain why chief financial officer Stephen Daintith is jumping ship to Ocado where the growth opportunities are plentiful.”

These articles are for information purposes only and are not a personal recommendation or advice.