Markets react as Democrats on verge of full control in the US and Greggs beats full year expectations

“The Democrats were in striking distance of full control of the machinery of government in the US on Wednesday, upending the market’s consensus view on the likely outcome and potentially disturbing the status quo,” says AJ Bell Investment Director Russ Mould.

“This was reflected in pressure on US tech stocks and an increase in the 10-year Treasury yield above 1% for the first time since March on expectations of higher stimulus spending and rising inflation.

“Investors had seemed to be quite comfortable with the ascension of Joe Biden to the White House and a divided Congress – welcoming an end to some of the unpredictability of the Trump era but also noting a Republican-controlled Senate would prevent Biden from implementing more radical elements of his agenda.

“The likes of Amazon, Apple, Facebook and Google owner Alphabet are vulnerable to Democrat plans to reform US antitrust law, a move which is designed to curb the power of the tech giants and break their monopolies, as well as potential increases in corporation tax.

“For now, just one of the two run-off elections has been called as falling into Democratic hands by the US TV networks, with the other still in the balance. However, a big sell-off in futures in the technology-heavy NASDAQ index suggested markets were now pricing in a sweep for the Democrats.

“Back in London the FTSE 100 continued to make a positive start to 2021 – construction materials firm CRH topped the leaderboard on expectations it might benefit from supercharged infrastructure spending across the Atlantic, assuming Biden has a freer hand. Rising oil prices on Saudi Arabian plans for a production cut also lifted BP and Royal Dutch Shell.

“Banks were also in demand, with HSBC and Standard Chartered, in particular, taking their cue from gains for the sector in Asia overnight.”

Greggs

“The latest lockdown measures present another obstacle in Greggs’ path to recovery, but the company is now well versed in trying to navigate the pandemic.

“The company’s latest trading update shows it achieved positive trading momentum despite there being tighter restrictions in parts of the UK. That’s very encouraging for when life does start to return to normal.

“Like-for-like sales in September equated to 76.1% of 2019’s level. Fourth quarter like-for-like sales averaged 81.1% of the 2019 level, showing a decent improvement.

“Full-year revenue of £811 million is 4% better than the market consensus of £777 million. Guidance for the company to record a full-year pre-tax loss of up to £15 million is also considerably better than the consensus of a £63 million loss.

“Sausage rolls fans who couldn’t live without their Greggs fodder have been flocking to Just Eat to have their favourites delivered to their home or they’ve been nipping to Iceland which sells frozen versions of its products. These additional sales channels have been helpful but are still relatively small potato in the bigger scheme of things.

“It is always sad to hear about news of job losses, with Greggs having to make difficult decisions while the pandemic still rages. Trading may have picked up, but the business is still vulnerable to setbacks, particularly over the next month or so while lockdown conditions have tightened.

“Management remain conscious of keeping a lid on costs while the backdrop remains fragile, but its optimism for life beyond the pandemic seems justified by the latest business performance.”

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