Equity markets are set to finish the session on a high note even though the Covid-19 crisis is still a serious issue.
Europe
Florida set a new record for the number of new daily cases on Saturday, but the reading eased a little on Sunday. It is evident that the reopening of economies can bring about a surge in cases, but given the reaction by traders on both sides of the Atlantic, they don’t seem to care that much for now. Florida and Texas have rowed back a little on certain aspects of reopening their economies, but the moves are relatively minor, so that hasn’t spooked the markets. Traders will be keeping an eye on the situation to see if the new measures help contain the virus.
BP announced the sale of their petrochemicals unit to Ineos for $5 billion. The asset disposal means that BP have achieved their goal of selling-off $15 billion worth of assets one year ahead of schedule. Bernard Looney took over as CEO earlier this year, and he is keen to restructure the company, as well as reduce its exposure to fossil fuels too. Earlier this month the group revealed plans to cut the headcount by 15%. The company recently said it will incur an impairment charge of up to $17.5 billion. BP revised its long-term (2020-2050) price assumption for Brent crude to $55 – the price it uses when making investment decisions and asset valuations - and that was a huge factor in the impairment charge. In April, Royal Dutch Shell cut their dividend so there is a lot of talk that BP will cut their pay-out too, so their second quarter update in early August will be closely watched.
Carnival shares are lower today as the company plans to raise $1.86 billion and €800 million from debt instruments. The cruise operator will use the fund to pay off other near-term debt obligations. The new funds will be raised at a relatively high cost as both debt products will be issued at 96% of their face value. The $1.86 billion will pay a coupon of adjusted LIBOR, with a 1% floor, plus 7.5%, while the €800 million will have a coupon of EURIBOR, with 0% floor, plus 7.5%. The relatively unfavourable terms of the debt issuance reflects the higher risks associated with lending the cruise company money.
By contrast, Grainger, who specialise in residential property, will raise £350 million from 10 year bonds and the interest payment will be 3%. The firm will use the cash to pay down £200 million of debt and the rest of the funds will be used to increase its property portfolio. Grainger confirmed that 97% of rents were collected on time in May, and keep in mind, the March and April rates were 95% and 94% respectively. Business has been ticking along nicely since the interim results were posted in May as occupancy rates were maintained at 97%.
It was reported that Next are looking to bring forward their well-known summer sale to Thursday. The event was due to kick-off on Saturday. There is chatter the promotion could see £100 million worth of stock be put on offer. In keeping with health and safety guidelines, only a limited number of people will be allowed in the shops at any given time. Its online division will have a clearance section too which will include items from previous seasons.
US
Stocks have rebounded from Friday’s losses as dealers are getting used to the idea that a higher number of infections is the price you pay when you loosen lockdown restrictions. Some states have paused or even reversed the easing of their lockdown rules, but dealers have shrugged that off. Pending homes sales in May surged by more than 40%, and the move underlines the high demand that exists, once people are allowed to go out and spend money.
Facebook shares are under pressure today as there is a growing number of companies that are reducing or even halting their advertising with the group. Recently a number of anti-racist organisations have called on corporations to boycott Facebook, as they feel the firm has not done enough to remove content that could be considered hateful. Honda and Hershey’s are some of the companies that have come out and said they will stop advertising on the social media giant’s platform.
Boeing shares are higher this afternoon as it was reported that the Federal Aviation Administration, along with Boeing staff, will start the three day process of certification for the 737 Max plane. Obtaining the certification would help Boeing’s battered reputation in the wake of the two disasters that included that aircraft in recent years.
FX
The preliminary reading of German CPI for June was 0.8%, which topped the 0.6% forecast, and it was an improvement on the 0.5% posted in May. The Spanish CPI reading for June was -0.3%, and that compares with the -0.9% registered last month. The turnaround in demand has assisted EUR/USD as it is clear that demand is turning higher.
Continued weakness in sterling has seen GBP/USD fall to its lowest level since late May. UK consumers have been keen to pay off their debt and that was highlighted in the Bank of England consumer credit report for May, which showed that £4.59 billion debt was paid down. This might be because certain sections of the economy are still closed, such as tourism, or perhaps people want to be less indebted as they fear tough times ahead.
Commodities
The lock of volatility in the US dollar has trickled down to the gold market as lately the inverse relationship between the two assets have been strong. The metal hit its highest level since October 2012 last week so it remains in its strong upward trend. Further gains from here might see it retest the $1,800 mark.
Oil prices are a little mixed this afternoon as WTI is a touch higher, while Brent crude is showing a modest loss. The mood in the oil market is tied to the perceptions about the health of the global economy. The news in recent days that certain US states are undoing the reopening of their economies has worried dealers a little as it could lead the way to lower demand. Profits at Chinese industrial companies grew in May, for the first time in six months, so that has supported the energy market a little as the nation is the largest importer of oil in the world. The number of active oil and natural gas rigs in the US and Canada has fallen to yet another record low, so that is acting in oil’s favour too.
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