Stock markets in Europe are broadly lower this afternoon as traders are worried about the prospect of a second wave of Covid-19 as countries are reopening their economies.
The easing of lockdowns has turned out to be a double edged sword, as the move towards reopening economies boosted equities recently, but now there are fears that it might set the country back in terms of the health crisis. Reports from South Korea and Germany show that new cases have jumped amid the easing of restrictions, and that’s why traders are dumping stocks today. When it comes to reopening the economy, there is a fear in the markets that it might be a case of one step forward and two steps backwards.
The weakness in the pound is assisting internationally focused stocks like British American Tobacco, Reckitt Benckiser, Diageo, and Unilever, which is why the FTSE 100 is outperforming its Continental equivalents.
Halfords’ shares have surged to a level last seen in September after Prime Minister Johnson encouraged people to cycle to work as a way of avoiding public transport. Yesterday, the UK premier said that firms operating in the construction and manufacturing industries could return to work provided it is safe to do so, and Mr Johnson also advised people to cycle to work rather than take public transport, hence the surge in Halford’s shares. It is worth remembering that Halfords issued a positive update last week, as the group said that it expects full year pre-tax profit to be at the upper end of its forecast, £50-£55 million. The firm was already in a relatively strong position before the update from the British Prime Minister, and now it appears it will be in an even stronger position.
Ocado’s positive run continues as the stock has set yet another all-time high. The market capitalisation of the online grocer now exceeds the value of Sainsbury’s, Morrisions and Marks & Spencer combined. The e-commerce retailer has seen a surge in demand for its services on account of the lockdown, last week it confirmed that second quarter retail revenue jumped by over 40%. Online shopping was already becoming more popular, and the health crisis is likely to have sped up its growth rate.
Wirecard shares are higher today following Friday’s news that James H. Freis will head up the newly formed integrity, legal and compliance department. The appointment comes a few days after KPMG published a report which stated there were accounting improprieties at Wirecard – the announcement rocked its share price. The appointment of Freis is a clear sign the company is keen to shake off its old image, and it is trying to rebuild customer and market confidence. A change in management is a positive step, but traders will want to see changes in relation to internal procedures too.
Centrica and Lotus have entered a partnership to develop a new model for electric car ownership. Lotus wants to develop an electric vehicle that reduces emissions as well as store electricity. The car manufacturer might need the expertise of Centrica in the field of vehicle-to-grid (V2G) technology – so the cars might be able to put energy back into the grid.
Ryanair, easyJet and IAG shares are in the red today after the UK government stated that people coming from overseas will be required to self-isolate for up to two weeks in a bid to stop the possibility of the health crisis spreading. France and Ireland have been excluded from the list, but such a move is likely to out-off potential travellers to the UK.
The Dow Jones and the S&P 500 are lower today as dealers are a little concerned about the possibility of seeing a jump in the number of new coronavirus cases as a large portion of US states have begun to reopen their economies. The tech sector has outperformed recently, and that is the case today as the NASDAQ 100 is showing a small gain on the session. The Dow and the S&P 500 have made huge gains since mid/late March so today’s negative moves are tiny by comparison.
Marriott shares are in the red as the company posted poor first quarter results. EPS tumbled to 26 cents, which greatly undershot the 80 cents forecast. Revenue slipped by 7% to $4.68 billion, but that was better than the $4.03 billion expected by equity analysts. The hotel group has been hit hard by the health crisis as the lockdowns have clobbered the tourism industry. Marriott confirmed that bookings in China last month improved, so that is a little encouraging.
Tesla sold 3,635 Model 3 cars in China in April, and that was a 64% fall on the month. According to the China Passenger Car Association, total electric car sales in April increased by nearly 10%, so Tesla underperformed. The company is suing Alameda County as the local authorities want to keep the group’s Fremont plant closed – to abide with health regulations. Elon Musk has threatened to move operations out of California.
The broad push higher in the US dollar has put pressure on EUR/USD and GBP/USD. Last week’s terrible US jobs report initially put pressure on the greenback, but by the close of trading on Friday it had recouped much of the losses, and today it’s pushing higher.
As far as economic data is concerned it has been a very quiet day in Europe and the US. The latest industrial production report from Italy was awful, as it showed a decline of 28.4% in March. European leaders are still divided over what sort of rescue package is needed to assist the eurozone. The grant to loan ratio is a major factor in the division. Weaker economies would prefer a higher portion of grants, while more affluent nations would like a larger percentage of loans being issued. The euro is likely to remain under pressure while no stimulus package has been agreed upon.
Yesterday, Boris Johnson revealed the long-awaited road map for the UK to exit the lockdown, and seeing as the UK plans to unwind the restrictions at a relatively slow pace, the pound has come under pressure. The CMC GBP Index is down 0.2% as dealers feel it will be months before the UK properly beings to reopen its economy.
The rise in the US dollar has pushed gold into the red. The inverse relationship between the two markets is playing out and that is why the metal is offside. Gold is lower today, but it hasn’t moved much below the $1,700 mark, and that is possibly because of the selloff in stocks. Some traders are nervous about the prospect of a second wave of Covid-19 as economies begin to re-open, so that has probably prevented gold from falling further.
WTI and Brent crude were jolted higher when it was announced that Saudi Arabia will cut output by an additional 1 million barrels per day (bpd) from June. When the new production programme begins, the output will be 4.8 million bpd below the output levels in April. Such a move underlines the desire to prop up the energy market.
Disclaimer: CMC Markets is an order execution-only service. 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.