Tech stocks surge to start week, boosted by derivatives trading

Markets were open yesterday despite a Federal holiday in the US, and jumped to start the week, propelled by the largest technology names. Apple, Amazon and Facebook gained 6.4%, 4.8% and 4.3% respectively, with signs that a wave of derivatives trading helped push share prices higher. According to the FT, millions of options contracts tied to Apple stock were bought on Monday, concentrated in call trades. As a result, banks that sold the options had to hedge the trades by buying up Apple stock, pushing the company’s share price up. Similarly, close to half a million Amazon options traded on Monday, six times the daily average this year.

Apple and Amazon’s share price rallies came ahead of significant days for both stocks. Amazon’s giant annual ‘Prime Day’ sale kicks off at midnight Pacific Time today, while Apple is expected to reveal its first-ever 5G iPhones.

Nasdaq leads the way, Ford gets a rating upgrade

Of the three major US indices, the Nasdaq Composite came out on top on Monday, closing the day 2.6% higher. The S&P 500 and Dow Jones Industrial Average gained 1.6% and 0.9% respectively.

The information technology sector led the way in the S&P with a 2.7% gain, while the consumer services and consumer discretionary sectors also finished the day more than 2% higher. Along with technology names, Ford also enjoyed a significant rally, adding 5.8% after Benchmark analyst Michael Ward increased his rating on the stock from a hold to a buy.

In corporate news, Johnson & Johnson announced that it has paused its Covid-19 vaccine trials due to a sick subject, a day ahead of its Tuesday quarterly earnings report. Elsewhere, Walt Disney announced a large reorganisation, intended to make its streaming services a higher priority and ensure that they are on the receiving end of its best new content.

S&P 500: +1.6% Monday, +9.4% YTD

Dow Jones Industrial Average: +0.9% Monday, +1.1% YTD

Nasdaq Composite: +2.6% Monday, +32.4% YTD

Rolls-Royce falls back, British Airways gets a new CEO

The FTSE 100 slipped yesterday, after UK Prime Minister Boris Johnson set out a new three-tiered system of localised Covid-19 alerts and lockdowns. Rolls-Royce was the biggest loser in the index, sinking double digits after a mammoth rally last week that saw its share price double. British Airways parent International Consolidated Airlines Group (IAG) fell too, closing the day 1.7% lower after new chief executive Luis Gallego wasted no time in making his mark on the company by changing out British Airways’ chief executive Alex Cruz with Sean Doyle, who was promoted from the top seat at Aer Lingus.

Despite the new lockdown restrictions, the more domestically focused FTSE 250 – which does still have a significant international component – gained 0.5%. Names including asset management servicing firm Sanne Group and Virgin Money UK helped the index higher, with gains of 8.7% and 5.5% respectively.

FTSE 100: -0.3% Monday, -20.4% YTD

FTSE 250: +0.5% Monday, -17% YTD

What to watch:

Johnson & Johnson: Consumer goods and medical giant Johnson & Johnson reports its third-quarter earnings today; the state of its now disrupted vaccine trial is likely to be a point of interest. On the firm’s Q2 earnings call in July, management told investors that the firm is working to build its manufacturing capacity to be able to deliver more than a billion doses of a Covid-19 vaccine by the end of 2021. The firm’s share price is up 4.1% year-to-date, lagging the broader market. Analysts are expecting a Q3 earnings per share figure of $1.98, with 13 currently rating the stock as a buy or overweight, and four as a hold.

US banks: Some of America’s financial giants deliver their own third-quarter earnings updates on today, including JPMorgan Chase, Citigroup and BlackRock. Of the trio, BlackRock – the world’s largest asset manager – has enjoyed the best 2020. Its share price is up more than 22% year-to-date. By comparison, Citi and JPMorgan are down 42.6% and 26.5% respectively; rock-bottom interest rates have hurt their margins on banking activities such as lending. M&A is likely to be a subject of all three companies’ earnings calls. JPMorgan boss Jamie Dimon last week said at a conference that his “line is open” on M&A, and Blackrock sits atop an asset management industry that is consolidating beneath it -– most recently with the news that Morgan Stanley is buying up $500bn fund firm Eaton Vance.

Delta Air Lines: Of the three main US carriers, Delta’s share price has held up best in 2020 so far, although it is still down 44.2% year-to-date. The firm’s share price has rallied 21.7% over the past three months. In October, we’ve seen renewed traveler numbers in the US, with the Transportation Security Administration registering 984,000 on October 11, the highest daily total since March. Delta delivers its Q3 earnings report today, the rate of cash the company is burning through at present, and hopes of further government support, are likely to be key points of interest.

Crypto corner: G20 to formalise the use of central bank digital currencies

The G20 group of the world’s largest economies has announced the intention to work with the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and the World Bank to set a series of ground rules for future central bank digital currencies (CBDCs).

The report states that the intention for the group of nations and international finance institutions to have a set of regulatory stablecoin frameworks in place by the end of 2022, from which a selection of CBDC technologies and designs can emerge.

According to the report, the IMF and World Bank intend to be capable of making international CBDC transfers by the end of 2025. As part of the regulatory framework, the G20 says any new CBDC should be connected to legacy financial infrastructures and be able to manage high-volume transactions 24 hours a day.

All data, figures & charts are valid as of 13/10/2020. All trading carries risk. Only risk capital you can afford to lose

Tech stocks surge to start week, boosted by derivatives trading from eToro.

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