Concerns that Europe’s economic rebound will be hampered are playing on traders’ minds.
Germany’s lockdown will now last until 18 April, while other countries have also adopted tighter restrictions in an effort to tackle rising Covid-19 cases. The EU’s vaccination distribution scheme is underperforming in comparison with Britain’s programme, and now fears of another wave of the virus in mainland Europe have sparked worries that several countries in the region will have to reopen their economies later than anticipated. Traders aren’t running for the hills, but there is a sense of fatigue that the restrictive climate will drag on a bit longer. Most European indices are in the red this afternoon.
Airlines like, Wizz Air, easyJet, IAG, and TUI are lower on fears that international travel and tourism will remain under pressure for longer. On the FTSE All-Share index, oil majors like Royal Dutch Shell and BP are some of the biggest fallers in terms of index points. Judging by percentage moves, Tullow Oil, EnQuest Oil, and Premier Oil are have dropped the most. The underlying oil market is weighing on the sector.
Cineworld shares are down 6% even though traders initially reacted positively to the news that it intends to reopen its cinemas in the next couple of months. Regal Entertainment is a subsidiary of the group and a limited number of its theatres will be screening Godzilla vs Kong early next month. In addition to that, more cinemas will be showing Mortal Kombat from mid-April. With respect to its UK business, cinemas should open their doors again in May, in line with government guidance. The screening of a couple of high-profile Warner Bros movies should make the reopening of theatres an extra special event. Cinemas as a whole have suffered hugely on account of the lockdowns, but thanks to additional financing, Cineworld has managed to muddle along. Towards the end of last year, it secured an extra $750m in terms of lending, but group debt stands at $4.9bn. It might be another six or nine months before Cineworld is back operating at pre-pandemic capacity, so even though it is good news that it will be recommencing business soon, it will face an uphill struggle, especially on the debt front.
AstraZeneca shares are a little in the red today after a report called into question the efficacy rate of its Covid-19 vaccine. Yesterday, Astra shares rose on the back of the announcement that its vaccination has an efficacy rate of 79%, and it is 100% effective against severe disease and hospitalisation. The Data Safety Monitoring Board, a US health agency, is concerned the pharma giant might have included outdated data in the trial, thus placing a question mark over the accuracy of the efficacy rate.
US
The S&P 500 is essentially flat on the session as traders are sitting on their hands. Fed chief Jerome Powell is just about to testify before the House Financial Services Committee in relation to the CARES act. Other US central bankers, Lael Brainard and John Williams, are due to speak this evening. Mr Powell is likely to praise the fiscal response from the government but point out that the jobless rate still needs to fall further.
ViacomCBS announced that it intends to raise $3bn from a stock offering. The plan is to issue $2bn worth of stock and issue $1bn worth of convertible bonds. There is talk the media company is keen to ramp up production of its own content as a way of taking on the likes of Netflix, Amazon Prime, Disney and Apple TV+. ViacomCBS owns the Paramount+ channel, which is going to reboot popular TV show from the 1990s, Frasier. In recent years, some people have questioned the vast sums of money being spent on creating new streaming content but if you don’t go down that route, your popularity is likely to suffer.
Things might not be going too well for AstraZeneca today but Regeneron Pharmaceuticals announced that its Covid-19 antibody treatment reduces fatalities by 70%. The US-listed group is working with Roche on the treatment in question.
Goldman Sachs upgraded Sunrun, the solar power company, from neutral to buy. The solar power sector is pegged to perform well as President Biden is keen to push renewable energy sources.
GameStop will report its latest quarterly figures after the close. The stock had had a rollercoaster ride in terms of price action in the past two months, as it was at the centre of a colossal short squeeze. Even though the stock has dropped considerably from its recent record high, some argue that it is still grossly overvalued.
FX
The US dollar index hit a two-week high. Robert Kaplan, the head of the Dallas Fed, announced that he is expecting the Fed to hike rates next year – he is very much in the minority. Mr Kaplan is pleased with the economic rebound but the Federal Reserve’s economic targets are still a long way from being achieved. The mild uncertainty in the markets today over fears in relation to some European countries not being able to reopen as soon as they initially planned, is helping the dollar rise – a risk-off play.
GBP/USD is lower due to largely disappointing UK jobs data, and the firmer greenback is also a factor. In Britain, the claimant count reading for February was 86,600, while the January report was -20,800. The claimant count increased from 7.2% to 7.5% - this level is thought to be a more accurate reading of the actual jobless rate, because the furlough scheme is distorting the official level. The unemployment rate for January was 5%, down from 5.1%.
The CMC NZD index is down over 1.5% as the New Zealand government has introduced measures to take some heat out of the overstretched domestic housing market.
Commodities
Oil has tumbled today over growing concerns about European demand, as tighter restrictions is likely to be a setback in regards to reopening their economies. Just over two weeks ago, the energy market racked up a 14-month high. Restricted output by Opec+ was a factor in the rally but so were hopes that western economies would ease up on restrictions, and in turn, that should lift demand. Now it seems that several large economies in Europe might not experience economic lift-off for a few more months, so dealers have been dumping oil as a result. Brent crude oil both traded below its 50-day moving average for the first time since November. The UK, US, Canada and EU have imposed sanctions on selected Chinese officials over human rights abuses. The heightened tensions aren’t helping sentiment in the oil market.
The rally in the US dollar has knocked gold. The metal is traded in dollars so a move higher in the dollar typically weighs on the commodity. Yesterday, gold was looking a little weak, but it was lower despite the fact that the greenback was offside. Since early January, gold has been in a downtrend and if the bearish move continues, it could target $1,670.
