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Global stocks surge on Covid treatment optimism

CMC Markets

Asia markets shrugged off the latest economic data out of China this morning surging on reports that US pharmaceutical company Gilead Sciences was getting positive results on Covid-19 patients from an experimental viral drug Remdesivir.

This optimism over a possible treatment for a virus that has infected millions, has helped overshadow some pretty dreadful data from China. It was no surprise to see that the Chinese economy contracted by 6.8% in Q1, however the lack of a rebound in retail sales for March, when a lot of the Chinese economy was reopened after the February lockdown suggests that the road out of this crisis is set to be a long one. Retail sales declined 15.8% in March, only a minor improvement on the 20.5% decline seen in February. What was odd was a decline in the unemployment rate from 6.2% to 5.9% which seems bizarre at a time when unemployment is soaring everywhere else.

If that pattern is repeated here in Europe then any recovery here, as well as the US, is likely to be a slow long drawn out affair, once lockdown restrictions are lifted. That also assumes a smooth exit without a rise in infections, which as Singapore is finding out, is easier said than done.

Nonetheless, looking past those problems, markets here in Europe are taking their cues from a strong Asia session, and optimism over a possible treatment for Covid-19 and have opened sharply higher this morning.

In company news French luxury brands LVMH and L’Oréal both indicated, in numbers released last night, that a recovery could come sooner rather than later as their businesses in China started to show green shoots of a rebound, towards the end of the month.

L’Oréal said that despite a decline in like for like sales of 4.8% in Q1 that its e-commerce saw sales rise by over 50%, and that Q2 could well see an improvement, as long as Asia holds up. While the fall in L’Oréal sales was quite modest, LVMH saw a 15% decline in revenue for Q1, prompting management to cut the dividend by 30%, with CEO Bernard Arnault forgoing his salary for April and May.

Swiss pharmaceutical giant Roche has seen its shares rise on the back of news that it intends to start selling an antibody test for Covid-19 in early May, which should help identify who has had the virus, even in cases where symptoms have been very mild.   

Flutter Entertainment, owners of Paddy Power and Betfair has seen Q1 revenue come in at £547m, helped by a 20% increase in online sales, and a 72% rise in US revenue. This has taken place despite the suspension of sporting events, showing that the diversification in its business model is helping to insulate the business in these difficult times. Management said they fully expect to complete the combination with Stars Group during Q2.

Associated British Foods, owners of the Primark brand along with Whitbread, owners of Premier Inn have both announced they are eligible for the governments new Covid Corporate Financing Facility, which has now been extended to include all businesses with turnover in excess of £500m.  

Rolls Royce shares are also higher after the company announced it was bringing together a group of companies to collaborate on Emer2gent, an alliance of data analytic experts in response to Covid-19 to help kick-start business and economic activity into recovery in a post Covid-19 world.  

European car makers have shrugged off this morning’s record 55.1% drop in EU new car sales for March. This decline isn’t too surprising given that most car sales showrooms were closed due to various lockdowns, with strong gains for BMW, Porsche and Renault.  

Man Group in its latest trading Q1 statement has reported net losses of $10.7bn on the back of recent market movements as a result of recent stock market volatility. Funds under management have also seen a fall of 11% to $104.2bn, however this was still an outperformance relative to the fall in the MSCI World Index which fell over 20%.

Rio Tinto shares are also higher on better than expected Q1 production numbers.

After a big rise in the last couple of days the US dollar is slightly weaker on the back of better sentiment today as we head into the weekend.

US markets look set to pick up the positive baton from the rise in Asia and European markets with another solid open, with the S&P500 set to open at its best level since early March, while the Nasdaq could well move back into positive territory for the year, helped by recent strong performances from the likes of Amazon and Netflix which have both been setting new record highs, in the last couple of days.

President Trump appears keen to set out a timetable, with a three phased plan for a resumption of economic activity in the US, perhaps spurred on by shocking jump in the jobless claim’s numbers, as well as some unrest in certain US states about the damage a prolonged is expected to do to jobs and livelihoods.

Gilead Sciences is likely to be in focus on the back of those news reports about a possible treatment for Covid-19, by way of its antiviral drug remdesivir, however while the early indications look positive it’s still probably far too early to draw any significant conclusions from the study results.

Boeing shares are also likely to rise sharply when US markets reopen after the company announced it would be resuming aircraft production from Monday next week.


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