Wednesday preview: US elections, M&S in the spotlight

updated: 3 November 2020 at 11:28am Author: Alexander Bueso

(Sharecast News) - All eyes on Wednesday will be on the result of the US presidential elections and whether Democrats are able to gain control of the Senate, the upper chamber of Congress.

According to Credit Suisse equity strategist, Andrew Garthwaite, the most likely outcome was that Joe Biden would take the White House and that his party would manage to eke out a small majority in the Senate, a so-called 'clean sweep'.

That, he said, would be the most positive outcome for markets (apart from a "highly unlikely" Republican clean sweep), because fiscal stimulus would be front-loaded, while much of the bad news - such as potential tax hikes and raising the minimum wage - would likely be watered down.

He estimated that an increase in the US minimum wage to $15 would slash roughly 10% off company earnings.

Nevertheless, a clean sweep with a large majority for the Democrats in the Senate, which he defined as more than 54 members, could potentially turn into the worst-case outcome for equities over the longer-term.

Not only would it allow the above policies to be implemented, Garthwaite said, it would also increase the odds that the Democrats could end the filibuster rule, which would allow them to implement their legislative and regulatory programme.

Also due out on Wednesday are closely-followed Purchasing Managers Indices for services sector activity in the UK and US, both referencing the month of October, as well as preliminary trade data for September.

For Marks and Spencer's interims, the company-compiled consensus is for a 42% on the year drop in Clothing&Home sales together with a 360 basis point drop in gross margins, for C&H earnings before interest and tax of-£90m.

UBS analyst Sreedhar Mahamkali meanwhile had penciled-in a 45% fall in C&H sales and a 500 basis point decline in gross margins for an EBIT loss of £122m in the segment.

In Food, consensus was for a 0.4% year-on-year fall in sales with gross margins narrowing by 110bp and EBIT of £110m.

Together with an anticipated £13m contribution from the Ocado joint-venture, consensus expected total profits before tax to come in at -£58m (UBS: -£98m).

Mahamkali also said he would be looking for information in the release as regards any guidance on the financial year, run rates going into the third quarter, commentary on store estate rationalisation and how the Ocado JV is performing.

For the full 2021 financial year, the analyst consensus anticipates group EBIT of £303m (UBS £312m) and adjusted PBT of £133m (UBS £133m).

Wednesday 04 November


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