European equity markets are largely lower because of growing concerns about the health crisis.
Europe
A record number of new Covid-19 cases in France and The Netherlands has soured sentiment in mainland Europe. It was reported that Spain is struggling too, and there is speculation that Madrid could be facing a lockdown. Things in the UK are not great either as London has been added to the Covid-19 ‘watch list’. The FTSE 100 is holding up alright in comparison with its eurozone equivalents, and this is because the British market underperformed yesterday – when the Winter Economic Plan was announced. Rishi Sunak, the Chancellor of the Exchequer, mapped out plans to encourage employers to keep on furloughed workers but he cautioned that some businesses will go bust and there will be a jump in the jobless rate. It seems that the UK got its bad news out of the way yesterday.
William Hill shares jumped on the back of a report that Apollo Management has approached the company with a takeover offer. The bookmaker confirmed that discussions are ongoing. Apollo made their initial proposal on 27 August and since then Apollo and Caesars have made offers. Earlier this month William Hill confirmed they will partner with Caesars Entertainment and ESPN. The London-listed group will be the exclusive sports betting operator for Caesars and it will be the sponsor of ESPN’s Fantasy products. European bookmakers have been scrambling to gain market share in US ever since some states legalised sports betting. Rules and regulations with respect to gaming have been tightened in many western countries, so now the US is the new frontier. Since 2007 William Hill’s share price is down over 50%, which is probably why they are a potential target. GVC Holdings and Flutter Entertainment are trading too.
In June a newspaper article alleged that Boohoo.com ltd used third party suppliers that had their staff working in unsafe conditions and paid them below the minimum wage. The report clobbered the stock price and the group reacted by hiring Alison Levitt QC to conduct a review of the business in a bid to get to the bottom of the situation. ASOS, Zalando and Next dropped Boohoo items from their sites in response to the newspaper story. The review carried about by Levitt found that Boohoo did not deliberately allow poor working conditions or low pay to take place within the supply chain. In addition to that, the fashion house will hire a person to oversee the implementation of tougher restrictions with respect to compliance and corporate governing. Traders reacted positively to the report as they feel that Boohoo has learned its lesson, and now that the independent review is out of the way, that should remove some of the uncertainty that was hanging over the stock.
Rolls-Royce shares have jumped on the back of a report that the Kuwait Investment Office is in talks to buy a skate in the struggling engineering titan. Recently it was reported that Rolls was in talks with sovereign wealth funds as they are seeking to raise up to £2.5 billion in funding, and now Kuwait’s fund has entered the mix. Rolls Royce shares tumbled to a new 16 year low today, so it is relatively cheap.
US
The mood on Wall Street is a little positive as things are ever so slightly moving in the right direction in terms of the political standoff between the Democrats and the Republicans with respect to the coronavirus relief package. The Democrats are now calling for a small package, they are seeking a $2.4 trillion package. The Republicans are unlikely to agree to a scheme of that size, but it bodes well for the negotiations that compromises are being made. The durable goods report for August was 0.4%, which was nowhere near the 1.5% growth that economists were predicting. The July reading was revised up to 11.7% from 11.4%. The August metric suggests a big drop off in spending, and that could be a sign the recovery is running out of steam.
Costco shares are slightly in the red on the back of the fourth quarter numbers that were posted last night. The retailer confirmed that Covid-19 related costs were just over $280 million, and traders latched onto that. The pandemic has been a double-edged sword for Costco as sales have surged, but health and safety expenses increased too. Overall, the group benefitted from the health crisis. Comparable store sales jumped by 11.4%, topping the 7.8% forecast. EPS was $3.04, which easily beat the $2.84 consensus estimate. The stock hit an all-time high at the start of the month so the broader positive trend is still in place.
FX
The risk-off attitude of traders has driven demand for the US dollar – which hit its highest level in over eight weeks. The US dollar has rallied almost 4% since the start of the month, when it fell to its lowest level in over two years. The greenback has been in decline since May but the fact it has been attracting safe-haven funds recently could suggest it might rebound further.
EUR/USD and GBP/USD are lower because of the positive move in the dollar. UK net public sector borrowing was £35.2 billion last month, which easily undershot the £39.5 billion that economists were expecting. The July reading was revised to £14.72 billion from £25.9 billion, which is a massive revision.
The risk-off sentiment is also evident because of the weakness in the CMC AUD Index and the CMC CAD Index.
Commodities
Gold and silver are in the red because of the continued move higher in the dollar. The inverse relationship between the greenback and the metals has been strong lately. Silver has more industrial uses than gold so the renewed fears in relation to the health crisis have hit silver hard, and in turn that has dragged gold down.
Brent crude and WTI are in the red as health fears and concern for the economy are doing the rounds. The oil market is sensitive to the perceived health of the world economy and there were already signs that the rebound was cooling before the recent jump in new cases of coronavirus in Europe.
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