Indices are showing decent gains as we approach the end of the trading session as the feelgood factor from Asia has helped stocks in this part of the world.

Europe

On Friday, equity markets in Europe sold-off heavily as dealers were worried President Trump would launch a trade-related attack on China, but seeing as that didn’t happen, stocks are rebounding today. Looking back on Friday’s move, it is clear that dealers were over fearful, but then again the Donald has form for erratic behaviour so caution was not surprising.

The manufacturing and services reports from China in the past couple of days were broadly well received. The three updates all registered growth, and European dealers took some comfort in that seeing as China was the first country to go into lockdown, and in turn, it was the first to emerge from lockdown, so some people are hoping that Europe will undergo a similar recovery. Given the nature of European societies it is likely the economic rebound will be slower, but any form of a recovery should be welcomed.      

Associated British Foods issued an optimistic update today as the company is set to reopen all its Primark stores in England on 15 June. Such a move would mean that almost 80% of floor space would be in use, and keep in mind, the clothing division doesn’t have an online unit, so it is entirely dependent on high street trade. The group currently has 112 stores in operation, which equates to roughly 34% of floor space. The shops that are open are experiencing ‘encouraging’ business. The cost cutting target for the past two months was exceeded, so the group is burning the candle at both ends.

Standard Chartered is one of the best performers on the FTSE 100 today. In the context of what is going on in Hong Kong, Jefferies believes that Standard Chartered are in a better position than HSBC as their exposure to commercial real estate in the territory only accounts for 15% its common equity, while it makes of up 45% of HSBC’s metric. Jefferies have raised their outlook for Standard to buy from underperform, in addition to that, the price target has been upped to 575p from 438p.           

Ted Baker shares have sold-off today following the group’s announcement that it plans to raise £95 million from a share placing. The fashion house might look to raise an extra £10 million from a share offering too. The company is planning on paying down debt in the next few years, and by 2023 it is aiming for its net debt to earnings ratio to be 1 or less. In the current climate, groups that have too much debt often pop up on short seller’s radar, so tackling the issue is prudent. The company’s full-year figures were disappointing as revenue slipped by 1.4%, and it swung to a loss of almost £80 million, from a profit of just over £30 million last year. Ted Baker was struggling even before the Covid-19 crisis kicked-in, so things have gone downhill for the group. In the 14 weeks from late January to early May, revenue fell by 36%.

Balfour Beatty have decided to scrap their final dividend. The share price was trading a little higher this morning, but it has slipped into the red, but the downside move hasn’t been that big. It seems as if traders were half expecting the final pay-out to be cancelled, because normally such a move would trigger a larger decline in the stock price. Huge uncertainty still surrounds the construction and civil engineering sector, but Balfour are in good health. The order book at the end of April was £17.4 billion, a 20% increase on the year. HS2 projects account for £3 billion worth of work. In March, the group was awarded contracts in the US worth $450 million. A number of years ago the firm underwent a tough restructuring plan, and it has bounced back since, so it appears that it is cancelling the dividend in an effort to avoid being caught in a difficult position.  

US

The mood on Wall Street is a little cautious as the images of protestors clashing with police in several US cities recently is hanging over the markets. Some of the clashes between the two sides were violent, and that has given dealers some cause for concern. There is a sense that a portion of the gains that were made on the back of the economy reopening is at risk of being handed back.

To a lesser extent, there are concerns about the state of US-China trade relations as it was reported that some companies in China - that are government controlled - were instructed to suspend their purchases of US agricultural goods. It is understood the Beijing authorities want to assess the situation.   

The US ISM manufacturing report for May came in at 43.1, which was an improvement on the 41.5 posted in April. The finer details showed that, new orders and the employment component were 31.8 and 32.1 respectively – both increased on the month.    

Pfizer shares are in the red after it was announced that one of it treatments – Ibrance - for breast cancer, is unlikely to meet its main target objective. The late-stage study is likely to be a setback for the company as the group had high hopes for the treatment. The update from the independent research group was posted at the end of last week. This morning JPMorgan, Citigroup and RBC all trimmed their price targets for the pharm company.

Sticking with the pharma theme, Eli Lilly confirmed that it has begun an early-stage trial to test for a potential treatment for Covid-19. The reaction in the market has been muted as the process is still in its infancy, but traders will be keeping an eye on developments.  

FX

The CMC GBP index is up 0.9%, making it one of the best performing currencies today. Sterling has been downbeat recently as there hasn’t been much progress made in relation to the post transition period agreement, but the pound has popped today.

The US dollar continues to decline. The currency lost ground in the latter half of last week, so now the minor worries about the trade situation with China, along with fears about civil unrest in a number of US cities has put even more pressure on the greenback. The ISM manufacturing reading was an improvement on the April level, but it failed to stop the slide in the currency.     

Commodities

Oil is mixed today as WTI is in down over 1%, while Brent crude is slightly positive. The energy market had a great run last month as WTI rallied nearly 90% so the slight increase in US-China trade tensions has given traders an excuse to book some profits. OPEC+ are due to meet next week, but there is talk the meeting will be brought forward to this week, and Russia said they are not opposed to holding the meeting earlier. There is chatter in the market that Russia might agree to keep the current production cut - 9.7 million barrels per day – in place beyond June.

Gold and silver are higher today thanks to the weaker US dollar. The mild tensions between the US and China are a factor too as some dealers are keen to hold assets that are deemed to be lower risk. Silver has more industrial uses than gold, so the reopening of economies has helped the metal in that regard too.      

 

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