It has been a lacklustre session today as there was an absence of new major news.
Europe
Yesterday it was announced that Dexamethasone, a low-dose steroid, performed well in clinical trials as a possible treatment for Covid-19. A team from Oxford University is heading up the trials, and the drug lowered the fatality rates of Covid-19 patients. There is a large supply of the drug and it is cheap, so there is a sense of hope surrounding that story. European equity markets were showing respectable gains for much of the session but trading ranges were small as there wasn’t much in terms of news flow to inspire traders. Stocks appear to be giving up some of their gains as we approach the close of trading.
Boohoo confirmed that trading was mixed at the start of the lockdown, mid-March through early April, but it still saw first quarter revenue come in at £367.8 million, and that was a 45% increase on the year. The gross margin rate edged up by 60 basis points to 55.6%. The group is essentially an online only fashion house and one of the reasons for its success is that it has a lower cost base when compared with traditional retailers – which have been broadly struggling to compete with online firms. The bankruptcy of Oasis and Warehouse has provided an opportunity for Boohoo who will acquire their online operations for over £5 million. The company is committed to its medium-term target of sales growth of 25% and a 10% rise in adjusted earnings. Peel Hunt increased its price target to 475p from 425p.
Kingfisher, the owner of B&Q and Screwfix, have seen a sharp rebound in sales since stores reopened. In the first week of April like-for-like (LFL) sales tumbled by 74%, but in the second week of May they jumped by 25%. First quarter LFL sales dropped by 24.8%, while LFL sales from the start of the second quarter until 13 June, jumped by 21.8%. The company had a very tough time during lockdowns, but the sharp turnaround in sales since the reopening of stores has caught traders’ attention.
Domino’s shares are in the red after the company cautioned that first half earnings will be slightly lower. UK LFL sales growth in the first half year-to-date has been strong as takeaways became popular on account of the lockdown, but the pandemic has also brought about higher health and safety costs, which is why stock in lower today. It seems that a lot of good news was already factored into the share price as it hit a two year high recently, so the comments about higher costs acted as an excuse to drop the stock.
HSBC announced massive job cuts in February as a part of a restructuring plan. When the pandemic struck, the bank felt it was important to put those plans on hold on account of the huge economic uncertainty – staff might struggle to find new jobs. Today it was announced it will press ahead with its plans to cut around 35,000 jobs. The bank also essentially has a hiring freeze in place.
US
The mood on Wall Street is muted, hence why the S&P 500 is a touch lower on the day. The bulls have been in charge lately but now it seems as if they are taking a breather. It would appear there is a little profit taking going on in light of the recent gains, but at the same time there are concerns that some US states have seen an increase in the Covid-19 infection rate. Jerome Powell, Fed chair, will be testifying before the House Financial Services Committee today at 5pm (UK time).
Oracle posted its fourth quarter results last night and they were a mixed bag. Revenue slipped by 6% to $10.44 billion, but the consensus estimate was $10.65 billion. Revenue from the cloud division only grew by 1% to $6.85 billion, and that undershot the $6.9 billion forecast. The growth rate in cloud revenue is very low by industry standards. In their latest update, Amazon revealed a 33% rise in its web services division, which houses its cloud business. EPS were $1.20 and equity analysts were expecting $1.15.
Norwegian Cruise Lines shares are in the red as the company extended the suspension of the majority of their cruises until the end of September. The update will set the company back from returning to normal business.
Southwest Airlines confirmed they will only sell up to two thirds of capacity on their aircrafts as seats will be kept vacant for the purpose of social distancing.
FX
The US dollar index is a little higher this afternoon which in turn has applied some pressure to GPB/USD and EUR/USD. Lately the greenback has been in demand when stocks are subdued or have tumbled, so today’s upward move might be down to the fact there is a lack of enthusiasm in equities.
Inflation in the UK has fallen to its lowest level in four years as the CPI rate dropped to 0.5% in May, from 0.8% in April. There are some questions over the accuracy of the reading, as roughly 30% of the prices that are normally included in the reading were not collected. Whether the 0.5% level is correct or not, falling CPI is common these days. The final reading of eurozone CPI was 0.1% - in line with economists’ forecasts.
Commodities
The move higher in the US dollar has pushed gold into the red. The inverse relationship between the two markets is in force today. The metal hasn’t seen much volatility in the last few weeks, but it has registered a series of lower highs recently. If the commodity drifts lower from here it might retest the $1,700 mark.
WTI and Brent crude were nudged higher in the wake of the mixed EIA inventory data, but the energy contracts are still down on the day. US oil stockpiles increased by 1.21 million barrels, while US gasoline inventories fell by 1.66 million barrels. The energy market posted big gains yesterday thanks to the upward revision to the IEA’s demand forecast for 2020, so a pullback is not surprising.
