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Europe outperforms despite UK-EU trade uncertainty

Europe outperforms despite UK-EU trade uncertainty

The future trading relationship between the UK and the EU remains in focus and even though the situation is not looking overly optimistic at the moment, stock markets in Europe are a little higher. 

The British prime minister, Boris Johnson, will have dinner this evening with Ursula von der Leyen, the president of the EU Commission, and that has been the talk of the town today. There is already chatter that a deal is not expected to be announced at tomorrow’s EU Summit. Yesterday, the UK removed the controversial components from the internal markets bill and that was received well by politicians and traders as it should help greatly with potential problems with respect to Northern Ireland. That being said, the Irish government is not too hopeful of a deal being secured, and the French hold a similar position.         

Sage specialises in providing business solutions to companies. The firm announced the sale of its Polish business for roughly £66 million. Last month Sage confirmed that full year profit margin cooled from 23.8% to 22.1%. Investment in cloud services were cited for the dip in profit and funds raised from the Polish move could be ploughed into areas like Cloud computing.  

The housebuilding sector has enjoyed a decent rebound in activity as order books have been strong, as work that should have been carried out this year, has been pushed back to 2021. When the property market reopened activity jumped as all the pent up demand from the lockdown was released. Vistry was a bit late to the party in terms of reinstating its dividend. Last month, it said it hoped to pay a dividend in the full year 2021 and this morning it said it would consider making a modest pay-out in 2020. Traders latched onto that as it sends out the right message. The company said it predicts that net debt at the end of the year will be no greater than £40 million or it might even have a net positive cash position. Vistry joined the likes of Barratt Developments and Taylor Wimpey by repaying furlough assistance it received from the government. The move also projects a positive image, but at the same time, it wouldn’t be a great look to pay dividends while availing of state aid.           

Balfour Beatty, the civil engineering and infrastructure firm, issued a reasonably positive trading update this morning. Full year group revenue is expected to be in line with last year’s reading of £8.4 billion, and profit is on track to hit management’s expectations. By year’s end the order book is expected to be around £17 billion, and that has been helped by the HS2 project. Balfour are clearly more confident in their outlook as the group declared that it will pay a dividend with the full year results, and keep in mind the firm didn’t want to commit to a pay-out back in August when the first half numbers were posted.

Tesco announced that the conditions have been satisfied for it to dispose of its businesses in Thailand and Malaysia for $10.6 billion. In recent years the supermarket chain has been retreating from certain geographic regions as it wants to focus on a number of core markets. The funds raised from the Asian deal will pave the way for £5 billion to be distributed to shareholders.

British American Tobacco shares have had a muted reaction to the groups’ reasonably upbeat pre-close update for the second half. Adjusted full year revenue is expected to be at the upper end of the 1-3% growth forecast. The group previously predicted that full year cigarette and tobacco heating products would see a 7% fall in revenue and now it foresees a fall of only 5%. Despite the turbulence of 2020, the company is committed to its 2025 £5 billion revenue target.

G4S has agreed to the £2.45 billion offer from the US's Allied Universal. Stagecoach confirmed that first half statutory EPS was 0.8p, down from 9.8p, so the group has suffered greatly as a result of the health crisis.           

US

The S&P 500 has retreated a little from its record high. Lately, there has been a lot of talk about a coronavirus relief package but from time to time, there are a few minor setbacks. Mitch McConnell of the Republicans claimed that the Democrats keep moving the goal posts in respect to aid so an agreement doesn’t seem likely in the near-term.      

Campbell Soup shares are a little lower this afternoon despite the good first quarter numbers. EPS was $1.02, which easily topped the 91 cents consensus estimate. Revenue rose by 8% to $2.34 billion, and that was fractionally above forecasts. The dividend was upped by 6% to 37 cents. The group’s second quarter revenue guidance is reasonably positive as growth is tipped to be 5-7%, which would only be a relatively small dip in growth from today’s numbers.

FireEye is a cybersecurity company and its shares have taken a knock as the company was a victim of a cyberattack themselves. Typically, a cyberattack on its own is enough to send shares lower but it is a double whammy it happened to be cybersecurity provider – it is hardly a ringing endorsement of their service. DoorDash shares are expected to begin trading on the stock market today.   

FX

USD/CAD is in the red but it is off the lows of the session in the wake of oil losing most of its gains following the EIA inventory report. The Bank of Canada kept rates on hold at 0.25%, meeting forecasts. The Canadian central bank reiterated the view that it will keep the quantitative easing scheme in place until it is needed.

The CMC GBP index is up on the day despite the slightly downbeat mood with respect to the UK and the EU arriving at a trade deal. The Johnson-von der Leyen meeting this evening is in focus and it is possible that sterling is up today as dealers are squaring up their positions ahead of the meeting. On Monday, sterling fell to a one month low and it has rebounded in the past two sessions.      

Commodities

Gold is in the red as profit taking has hurt the asset. Yesterday the yellow metal hit its highest level in over two weeks and the positive move was partially fuelled by the uncertainty running through European equity markets. The size of gold’s move today is big when you take into account the muted move in the US dollar – there has been a robust inverse relationship between them recently.

WTI and Brent crude are now in the red. The energy contracts were up 1% over one hour ago, but the surge in US oil and gasoline inventories basically wiped out the gains in the oil market. According to the EIA, US oil and gasoline stockpiles rose by 15.18 million barrels and 4.22 million barrels respectively.