Europe heads lower on lockdown fears

European markets are heading for a weaker open after a mixed performance on Wall Street as earnings and the upcoming elections prompted a cautious tone to trading. European bourses are further pressed as nations such as Germany and France mull national lockdowns in a bid to stem the spread of resurging coronavirus.

A national lockdown, as we have seen in Q2, ravages an economy and would add significant complications to the economic recovery. Whilst Germany and France are considering a lighter version than the lockdown seen in March, tighter lockdown restrictions have already resulted in business activity in the Eurozone contracting, tougher measures would deepen this contraction further, particularly in the service sector.

These moves will up the pressure on the ECB to deliver more stimulus to support the bloc’s fragile economy. Attention will turn to tomorrow’s ECB meeting. Whilst it is probably still too early to see any further action from the ECB this month, there is a very good chance that the central bank will tee up the market for further asset purchases in December.

Oil slumps 3%
Oil majors will be in focus as covid cases surge in Europe and US the price of oil is tumbling lower. Oil has skidded over 3% lower in early trade, paring gains from the previous session. Elevated US crude inventories coupled with soaring coronavirus infections in the US and Europe hitting the demand outlook have prompted fresh selling in oil and the bears to take back control. With covid on the rise movement in Europe and North America will be greatly reduced over Autumn and the winter months bringing oil demand right back down again. The lack of US fiscal stimulus is adding to the gloomy outlook for demand. At the same time output is once again ramping up in Libya, at a time that is least needed.

Next upgrades FY profits (again)
British clothes retailer Next has impressed by upgrading its annual profit guidance after sales grew by more than expected in the third quarter. Full price sales jumped +2.8% in Q3 an Next now expects full year pre-tax profits to be £365 million, up £65 million from guidance in September.

Next’s sophisticated online offering has helped the online retailer to weather one of the most challenging storms seen by the retail sector in recent times. Next now does more than half of its sales online making it one of the few bricks and mortar retailers to successfully transition into e-commerce in a significant way.

The outlook for Next is still extremely challenging, particularly with tighter lockdown restriction being brought in and the prospect of Christmas being cancelled. The risk that an extending economic slowdown could see customers move away from the mid-market price point towards cheaper alternatives could also grow.

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