FTSE 100: hope for progress in the Brexit deal

The FTSE 100 index looked set to rally on Friday, taking its lead from Wall Street which staged a modest rally yesterday.

Spread betting quotes point to the UK blue chip index opening around 15 points higher at 6,349, as investors wait to see whether reports that a Brexit trade deal will be sealed next week turn out to be true.

Overnight, the Dow Jones Industrials Average, which got off to a wobbly start on Thursday, closed 45 points to the good at 29,483 while the S&P 500 advanced 14 points to 3,582.

China left its one and five-year loan prime rate benchmarks unchanged this morning at 3.85% and 4.65% respectively.

“The decision should be of no surprise with China’s economy firing on all cylinders,” said Jeffrey Halley.

“Even a Covid-19 slowdown from the US and Europe impacting exports would only be a mere flesh wound at this stage, especially with vaccines now on the horizon. If China wants to raise money, they can issue bonds in Europe and have Europeans pay them for the privilege,” he added.

Hong Kong’s Hang Seng index was on the up as a result today, rising 88 points to 26,445 but elsewhere in Asia, Japan’s Nikkei 225 was down 133 points at 25,501 as investors continue to wonder whether the lid is coming off the coronavirus pressure cooker in the Land of the Rising Sun.

Closer to home, the UK retail sales numbers should be interesting, with observers keen to see whether the recovery has been maintained.

“Since the lockdown, in April we’ve seen five consecutive months of decent gains; however, this could well be as good as it gets for retail spending as we head into year-end given recent steps by the government in re-imposing lockdown restrictions throughout certain parts of the country,” observed Michael Hewson.

“In September retail sales saw an increase of 1.5%; however, recent third-party studies have been somewhat mixed, with some suggesting a sharp slowdown in the October numbers, while others like the latest British Retail Consortium sales survey, showed a pre-lockdown surge which pushed the numbers higher ahead of the November lockdown.

“On the downside, pub and restaurant sales saw a decline of 33% as tighter lockdown restrictions hit demand. Whatever the number for October and expectations are for a -0.3% decline, it is likely to be a last hurrah, before we see an even sharper slide in the November numbers, a month from now,” Hewson said.

As for company results, The Sage Group PLC (LON:SGE) is set to report final results on Friday, having last updated the market in July when it reported “more challenging trading conditions” due to coronavirus but added that this had eased off as the third quarter progressed.

The market is presently estimating 7.5% growth in recurring revenues for the year, with total group sales growth of 2.9% to £1.88bn and SSRS down 24% for the quarter and the year.

Analysts said that with extended government support programmes to SMEs, they believe guidance for a “low-to-mid single-digit” or perhaps 3%-5% recurring revenue growth may be given, “although are more cautious in our own model (+1.0%)”.

“We think the key question is what margin Sage expects,” the analysts added, with the current market forecast at 22.0%.

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