23-6-2020 10:15:49A roller-coaster session for US markets culminated in a rather mixed close to proceedings as the early gains disappeared on reports that the antiviral drug remdesivir being worked on by Gilead Sciences, had seen disappointing results from a clinical trial.

This is likely to be a familiar theme in the coming weeks with markets swinging around on the success or failure of antiviral, as well as vaccine trials, as investors look for crumbs of comfort on the treatment front, amidst the incessant flow of awful economic data.

Markets in Europe here have picked up on that setback, opening sharply lower this morning on the back of a weak Asia session, and some disappointment over the outcome of yesterday’s EU summit as EU leaders once again failed to deliver, wiping out all the gains from yesterday in the process.  

Yesterday’s EU summit unsurprisingly ended with no real progress on a recovery fund that would help rebuild the shattered economies of the weaker European economies. While some would argue that there was some progress in that German Chancellor Angela Merkel said that Germany was prepared to contribute to a fund to aid a recovery, there was no real detail on how much of any new fund was likely to be made up of loans and grants, and more importantly how big it was likely to be.

While EU Commission President Von Der Leyen suggested the fund could be in the region of €1trn, there appeared little prospect of a swift agreement given the disagreements between member states about the size of any fund, as well as the balance between loans and grants, with some suggesting a target date for the fund to be in place at the beginning of 2021. This would be an utterly extraordinary, as well incomprehensible delay, given the pressing nature of the problems in the euro area, but also highlights the underlying tensions between the various member states.

As we come to the end of a week that has seen oil prices hit their lowest levels in over 20 years, before recovering sharply in the last couple of days, equity markets in Asia have ended the week on a largely negative note, reversing the gains from the week before.

It looks set to be a similar story here in Europe, in terms of weekly gains, where we’ve seen, despite some fairly big swings, very little progress in the last two weeks, with markets trading in fairly large ranges, but struggling to establish any sort of direction.

On the earnings front it’s been a solid quarter for Nestle with a rise in Q1 revenue of 4.3%, helped by consumers going on a buying spree for its frozen food products. The company was also one of the few global businesses to maintain its full year guidance, though they did add a caveat that Covid-19 might derail that.   

On the downside German carrier Lufthansa is down sharply, after warning on its liquidity position as it warned that it was course to lose €1.2bn in Q1. The airline is looking for a €10bn bailout from the German government which appears to be stalling for the time being. It’s almost inconceivable that Germany would allow its state carrier to fail, however with options running out that appears to be precisely where we are.    

Luxury fashion giant Burberry appear to have adopted a refreshing and welcome approach to the closure of its stores and its employees. This morning they announced that they would be continuing to pay their employees their full base salaries, and would not be relying on the governments furlough scheme, in the UK. Senior management would be taking a voluntary pay cut of 20% from April to June.

The trench coat factory in Castleford is now manufacturing non-surgical gowns for the NHS, and the company is also sourcing surgical masks through their supply chain, and supplying them to the NHS and Marie Curie.

Following in the footsteps of its peers Taylor Wimpey and Vistry Group, Persimmon has also announced that it will also start a phased re-opening of construction sites from Monday 27th April. The company also said that cancellation rates remain low for existing sales, with 820 private sales reservations being secured in the last 5 weeks. The company said it will release a trading update on the 29th April.

Digital education company Pearson also said that trading was in line with expectations in its latest Q1 update with revenue down 5%. The Covid-19 closures of testing centres in the Professional Certification and Clinical Assessment contributed to this weakness. The company said that Q1 results would be in line with its previous guidance in March, with management taking 20% to 25% reductions in their remuneration. Management have also decided to maintain the dividend, proposing a final payment of 13.5p a share.

In what is likely to perceived as good news for Mike Ashley Frasers Group, previously Sports Direct, announced an undisclosed settlement with the Belgian tax authorities over the claim for €674m disputed VAT. The settlement was for an immaterial amount.

Premier Inn owner Whitbread have also announced that they will be delaying the announcement of their full year results, which were due next week, until the end of May, beginning of June.

The pound has shrugged off the latest UK retail sales numbers for March, which showed a monthly decline of 5.1% with fuel included. If anything, this could have been worse, given that we saw huge falls in spending across the board, with clothing sales falling sharply. These were offset by big increases food sales, household goods and alcohol, showing double digit percentage rises of 15.3%, 18% and 31.4% respectively.  

This offset in food and other sales is unlikely to be there in the April numbers, as spending patterns level out, and food and household goods sales stabilise as consumers adapt to a new normal of social distancing, and supply chains catch-up. This might mean that April could well be equally as bad, if not worse, given that the lockdown only began at the end of March.  

US markets look set to open lower, despite the US house passing the next stage of the $484bn aid bill to small businesses with the President set to sign off on the bill fairly soon.

The fairly fickle nature of sentiment continues to drive recent flow, with the progress on a treatment or vaccine lending greater weight than the continued deterioration in economic data. Another 4m rise in jobless claims yesterday was absorbed by the markets given that it was largely expected, with future gains likely to be contingent on at least two conditions. These are likely to be on progress in coming out of lockdown, which in turn will contingent on infection and death rates falling as well progress on possible treatments and/or vaccines.

Today’s March durable goods numbers are expected to show a 6.5% plunge, excluding big ticket items, and a 12% fall when these are included.  

Boeing shares are likely to be in focus later today on reports that it is cutting its production of the 787 Dreamliner by half, and could well announce widespread job losses next week when it reports its latest numbers.

Chipmaker Intel is also withdrawing its full year sales forecast despite seeing a 23% rise in Q1 revenue, and better than expected profits. Its profit outlook was also slightly on the conservative side raising concerns that demand may well have been front loaded due to rising laptop demand as more people work from home.

Alphabet is also in the news on reports that Google is cutting its marketing budget by as much as 50%, as well as implementing a hiring freeze in response to the economic slowdown hitting the global economy. With so many other business slowing marketing spend it would appear that Google is also taking steps to address a slowdown in revenue growth as its partners cut costs in response to slowing sales.

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