Stock markets are in the red as traders are a little downbeat on account of the lack of progress in relation to an EU rescue package, as well as the disappointing results for a potential Covid-19 treatment.

European leaders are divided about the size of the financial package. There are even deeper divisions over what portion of the scheme will be grants, and what portion will be loans. Broadly speaking, southern European economies are calling for grants, while the northern members are keen on loans. The lingering division is hanging over sentiment.

Hopes for a potential Covid-19 treatment were running high this day last week, as Remdesivir, an antiviral drug produced by Gilead Sciences, was reported to have helped patients with fever and respiratory problems. Those hopes were dashed when a medical trial in China said the drug was unsuccessful. When it comes to the pharma industry, there is usually a lot of trial and error, so I doubt we have heard the last about a potential treatment for the coronavirus.    

Persimmon are the latest house builder to confirm they will re-open building sites. The company will begin ‘phased’ working from Monday. Yesterday, Vistry and Taylor Wimpey announced they will resume construction work soon. Sales staff at Persimmon have been working remotely since the lockdown. In the five weeks to 19 April, 820 private sales were made. Cancellations are at ‘historic lows’, despite the huge economic uncertainty caused by the pandemic. The group clearly is in rude health as it has not furloughed any workers, and it has no plans to access government funding schemes. Persimmon will post a trading update on 29 April. The stock is fractionally higher, but it enjoyed a bullish move yesterday.

Lufthansa shares are in the red today as the company said it could run out of cash within weeks if it doesn’t receive government assistance. The airline has requested a bailout from the governments of Germany, Belgium, Austria and Switzerland. The price action of the stock today would suggest that dealers are not overly worried about the prospect of the airline going bust, but they are concerned nonetheless. The firm anticipates its first-quarter loss to be about €1.2 billion, and the second-quarter loss is tipped to be even worse.

FirstGroup shares are in demand today as the company confirmed it received £300 million in funding from the Covid Corporate Finance Facility (CCFF), so that brings its committed headroom and free cash up to £800 million. Nowadays dealers are cautious of companies running low on cash, so the company’s robust liquidity position has helped the share price. The company’s greyhound unit in the US is eligible to receive funding under the CARES act, so that would help to keep the operation ticking along. In a bid to conserve cash, executive directors and the board of directors have agreed to take pay cuts of 20% for an initial period of three months. Other members of management are also taking pay cuts. In the UK, Firstbus is operating at 40% of normal capacity in accordance with the government’s request. The group will not post its full-year numbers next month, and the AGM will no longer be held in July, but the company will keep the market updated about planned future events.  

In accordance with the FCA’s guidelines, Whitbread will delay the announcement of its full-year figures. The end of April was originally planned for the publication of the figures, but now it is aiming for late May or early June. As stated last month, the results are tipped to be in line with management’s expectations.

Meggitt posted well-received figures yesterday, but today two brokers cut their price target for the stock. Berenberg lowered its price from 340p to 295p. Panmure cut its target to 252p from 421p, but at the same time they upped the rating to hold from sell.  

US

Sentiment is a little weak on Wall Street as the US indices are in better shape than their European equivalents. The continued move higher in the oil market, along with the $484 billion rescue package that will be approved by President Trump has given traders reason to be bullish, but the Remdesivir story is holding sentiment back – Gilead Sciences’ shares are in the red. The durable goods report for March was dreadful, as the reading was -14.4%.    

It was reported that there will be a big cut to Google’s second half marketing budget. The report claimed that up to half of the budget could be slashed. It was also alleged there is a hiring freeze in the department, which was denied by a spokesperson for the tech giant. Alphabet is the parent company of Google. The economic ramifications of the health emergency will be huge so it is highly likely that companies that use Google for advertising will curtail their own spending, and in turn that might prompt the tech giant to follow suit. Alphabet will post its first-quarter numbers on Tuesday.   

Echoing the big banks, American Express has increased its credit provision to $2.6 billion, from $809 million one year ago. This is a clear sign the company expects bad debts to surge on account of the pandemic. To make matters worse, American Express noted a decline in activity in late February, and that accelerated into March, so the months ahead are likely to be difficult. Higher bad debts and lower activity is not a good combination. When you factor in the huge credit provision, quarterly EPS tumbled to 41 cents, from $1.8 last year.

Intel shares are in the red as the second-quarter guidance undershot the consensus estimate, and the company didn’t provide a full-year forecast. In the first quarter, revenue jumped by 23% to $19.83 billion, exceeding forecasts, while EPS were $1.45, topping the $1.28 consensus estimate. Looking ahead to the second quarter, the group anticipates EPS and revenue of $1.10 and $18.5 billion, while equity analysts were projecting $1.19 and $19.97 billion respectively.   

FX

The UK retail sales report was poor as it fell by 5.1% in March on a monthly basis, undershooting the -4% consensus estimate. It was a big drop from the -0.3% registered in February. Food stores saw sales rise by 4%, while non-food stores registered a drop of 8%. Seeing as there was a lot of stockpiling going on at the start of the health crisis, it is likely the food stores figure was overinflated. Therefore next month’s total reading will probably be even worse than today’s level, which was the worst on record.   

The EU’s chief negotiator, Michel Barnier, said a decision about an extension of the transition period needs to be taken by June. There has been a lot of speculation about whether the UK government will seek to prolong the transition period on account of the coronavirus, but if the Brexit process has taught us anything, it’s that it will probably drag on until the last minute. The CMC GBP index is down 0.15%     

EUR/USD is higher on the day, but that is largely down to a weaker dollar. The German IFO business climate reading slumped to 74.3 in April, from the revised figure of 85.9 in February. The reading was far worse than the levels witnessed during the height of the credit crisis.

Commodities

WTI is higher again as the major rebound that started a couple of days ago has shaken off the bearish sentiment that was looming over it for weeks. The energy is still facing weak demand but as of next month, OPEC+ will embark on a historic output cut. It was reported that Kuwait might start to lower production even before the May starting point. US oil producers might curtail output as the energy regulator in Oklahoma said firms can close their wells without losing their leases.   

Gold is in the red as it suddenly came under selling pressure about 90 minutes ago, but it is recouping the lost ground. For most of the day it was higher thanks to the slide in the greenback as well as the negative sentiment in stocks.

 

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.