Equity markets in Europe are largely mixed this afternoon even though there have been some concerns about the possibility of a flare up of Covid-19 case as countries reopen portions of their economies. 

Europe

The topic has been talked about in the past 48 hours but it hasn’t had a huge impact on the markets. It is something that traders are mildly worried about at the moment, as it is a very real possibility, but it seems to be too early to say whether there will be a painful second wave of Covid-19 cases, or just the odd tick up in new cases.

The FTSE 100 is outperforming in Europe for a second day in a row. The British index is being assisted by Vodafone – who are contributing nearly 8 points to the index’s positive move. Similar to yesterday, higher moves in international companies like Diageo, British American Tobacco and Reckitt Benckiser are playing a role in the benchmarks bullish move.     

Vodafone shares are up as the dividend was maintained. The fact the company kept its cash pay-out on hold was seen as a positive given that many companies are either scrapping their dividends or cancelling them these days. Full year revenue ticked up by 3% to €44.97 billion, while revenue in the last quarter edged up by 1.6%. Adjusted EBITDA rose by 2.6% to €14.9 billion, but the loss for the financial year was €455 million, as impairments and net financing costs hit the bottom line. The group confirmed the European Tower unit is now operational and it will be earning money by early 2021.   

Kingfisher revealed that like-for-like (LFL) sales in the first week in May increased by 2.7% as stores reopened from the lockdown. The stock suffered greatly between mid-February and mid-March as the pandemic set in, but today’s update shows that there is light at the end of the tunnel. Nearly half of Kingfisher’s stores in Europe are open to the public, and many outlets that are not open to the public offer a click and collect service, so operations are largely running.

Morrisons shares hit their highest level since late March today on the back of the company’s first quarter update. Group LFL sales excluding fuel increased by 5.7% in the 14 week period, while they rose by 10.8% in the last two weeks of the timeframe. The group’s online offer is expanding ‘significantly’.   

Ryanair said that it plans to recommence flights in July at 40% of capacity. Staff and passengers will be required to comply with strict health and safety rules, such as wearing facemasks, and cash will not be accepted as payment for refreshments. From July the airline’s operations will cover roughly 90% of its pre-crisis network, but the flights will be far less frequent. The optimistic update from the airline today has helped the stock regain some of the ground it lost yesterday on the back of the news the UK will require passengers to self-isolate for 14 days after arriving in the country.

Land Securities shares are down 12% as the full year pre-tax loss widened to £837 million from a loss of £123 million last year. Full year revenue slipped by 6.3% to £414 million. In a bid to conserve cash the group did not pay a final dividend, so the full year dividend fell by over 49%. The property group confirmed some aspects of trading were ‘challenging’ before the pandemic, so that will give you an idea about how the firm is coping in the current environment. The lockdown has greatly impacted the recent levels of rent collected, and the firm expects to collect lower rent in the new financial year. British Land shares have sold off sharply too.

ThyssenKrupp, the German industrial powerhouse, posted a second quarter loss of €948 million, and keep in mind the loss in the same period last year was €173 million. Orders were down by 8%. The company pulled its full year guidance and cautioned the third quarter loss could be even wider than the second quarter reading.  ThyssenKrupp is a bellwether German company, so if it is suffering, it highlights the pain felt in the largest economy in Europe. The stock is down 15%.

US

Sentiment on Wall Street is mixed as the prospect of the coronavirus having a second wave has left some traders a little nervous. The news that China, South Korea and Germany have all seen the number of new cases rise due to the loosening of restrictions has prompted traders to wonder will the same be replicated in the US.

We have heard from a couple of central bankers today – Robert Kaplan and James Bullard. Mr Kaplan would like to see more fiscal stimulus to complement the Fed’s policy, while Mr Bullard feels that more QE is the best way to assist the economy.    

The CPI rate in April tumbled to 0.3% from 1.5% in March, and even though the fall in the core CPI rate wasn’t as steep, it was still pretty big – the core metric was 1.4%, down from 2.1%. It is clear that demand has been hit hard by the pandemic, but seeing as a large number of states are reopening their economies, we might see a tick up in the readings in the next few months.   

Tesla remain in the news for the wrong reason. The electric vehicle manufacturer has recommenced operations at its plant in Fremont, California, despite not getting the green light from local authorities. Elon Musk, the group’s CEO, ordered the reopening of the factory in defiance of the district health regulations, so traders are probably more concerned about reputational damage to the firm rather than operations getting going again. Mr Musk has form when it comes to wayward behaviour so this might not be the last time he does something like this.      

FX

The US dollar index is in the red today, but keep in mind it has been pushing higher throughout May. The greenback has recently benefitted from the flight to quality play, so today’s move lower might just be a case of the bulls taking a breather.

EUR/USD have been given a lift by the dip in the US dollar. There were no major economic reports posted from Continental Europe today. The currency pair has seen low volatility recently, and it has lacked direction.

Rishi Sunak, the Chancellor of the Exchequer, confirmed the current furlough scheme will be extended until October. The news weighed on GBP/USD as traders are concerned about the UK’s national debt in light of furloughed workers being paid 80% for another few months.

AUD/USD came under pressure overnight as trade tensions between Australia and China put pressure on the Australian dollar, but the broad fall in the greenback helped the Aussie recoup earlier losses.   

Commodities

Gold has been given a hand by the weaker US dollar. The metal is above the $1,700 mark, but that’s not saying much as it has spent a lot of time dancing around that metric recently. In the past couple of days there has been fears that fresh cases of the coronavirus might jump as governments around the world as loosening their lockdown restrictions, and that has given some traders a reason to buy into gold.

WTI and Brent crude are higher this afternoon due to yesterday’s announcement that Saudi Arabia will cut production by an additional one million barrels per day come June. In April, Russia and the Kingdom agreed a ‘historic’ production cut, but the Saudi’s will introduce even deeper cuts. Seeing as dealers are worried about a second phase of Covid-19 taking off, there are demand concerns lingering, but for now traders are focusing on supply. The API report tonight will be interesting as it will give us an idea about US demand as well as any potential storage problems.

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