Stock markets in Europe have been rocked by the jump in Covid-19 cases, and the stricter restrictions are a factor too. 

Europe

During the summer months, there was a sense of optimism in the markets as economies were being reopened and there was a view that governments had a handle on the crisis. Now there is a feeling that countries are struggling to contain the health emergency, and the announcement of curfews and localised lockdowns adds to the view that things are going to get worse before they get better. The Spanish government has taken the drastic step of declaring a state of emergency, and that has sent out a very negative signal. In London, mining, oil, house building, travel and transport stocks are all in the red.           

The bulk of big British banks are a touch higher this afternoon on the back of a story that the Bank of England (BoE) is in consultation with UK banks about potentially allowing them to resume paying dividends. The speculation that the finance houses might return to making pay-outs has helped the sector, but the BoE might be getting ahead of itself because we have yet to see the full extent of the damage in terms of defaults on loans. On Friday, Barclays posted better than expected third quarter numbers and HSBC’s figures will be in focus tomorrow.

A newspaper article claimed that staff at a major hospital in London were told to get ready to roll out the AstraZeneca-Oxford University Covid-19 vaccine from early November. It is understood that the product has had a positive response in the elderly patients who took the drug.      

SAP shares have tumbled after it lowered its revenue and earnings target for 2020. In addition to that, the tech company abandoned its targets for 2023.  The stock had its worst performance since the 1990s. SAP initially benefitted from the pandemic as demand for cloud computing had increased, but now that tougher restrictions are back in force. There is heightened uncertainty, and that will probably equate to firms spending less, and in turn that is likely to have a negative impact on the company. Margins are tipped to come under pressure as the company is investing in its cloud business. SAP cautioned that demand could remain weak into the first half of 2021.

Daimler-ag-de revealed well-received quarterly figures last week as earnings comfortably topped forecasts, and the full year outlook was lifted as the car manufacturer saw a decent rebound in business in China. This morning, Jefferies, RBC, Kepler Cheuvreux and Bank of America all lifted their price targets for the stock.       

Pearson shares are bucking the wider negative trend thanks to an upgrade from UBS. The Swiss bank raised its rating to buy from neutral, and upped its price target to 650p from 545p.   

US

The mood on Wall Street is also bearish as the health crisis is back at the forefront of traders’ minds. Lately, US stocks have been dragged around by the back and forth of the proposed US stimulus package but all the while the health situation was bubbling away, and now it has re-taken centre stage. 

Hasbro, the broad games and toy company, posted solid third quarter numbers, but as good as the update was, it wasn’t as bullish as Mattel’s last week. Hasbro’s EPS for the three month period was $1.88, and that easily topped the $1.63 consensus estimate. Group revenue increased by 12.8% to $1.78 billion, which was ahead of forecasts. The lockdowns prompted higher demand for Hasbro’s products, and that was reflected in the figures, but traders felt the update wasn’t as optimistic as that issued by Mattel last week – the company revealed a bullish outlook for the holiday season, while Hasbro didn’t release a guidance. It is worth noting that Hasbro’s stock hit an eight month high on Friday - thanks to the update from Mattel.

Tesla Motors Inc announced that capital expenditure in 2020 will be at the upper end of the $2.5-$3.5 billion guidance. Over the next two years, the automaker predicts that capital expenditure will be between $4.5 billion and $6 billion. The company is clearly bullish in its outlook and that comes on the back of the solid third quarter results from last week. 

Dunkin’ Brands Group Inc shares soared to a record high on the back of a report that the company is in preliminary takeover talks, and Inspire Brands are believed to be the potential buyer.   

FX

The US dollar index is benefitting from the risk-off attitude of traders. The currency has been a popular safe haven play in recent months and the health concerns and worries about tough restrictions are back in focus, the greenback is moving higher. Last week, the dollar fell to a seven week low, so it was starting from a relatively base. EUR/USD and GBP/USD have been hit by the upward move in the greenback.

The CMC AUD index is a touch higher on the day despite the sizeable sell-off in metals and energy. The Australian dollar typically comes under pressure when commodities take a knock. The CMC CAD index has been dragged into the red because of the sell-off in oil. The ‘loonie’ is typically considered to be a risk-on currency and the oil market normally has a large impact on the currency.    

Commodities

WTI and Brent crude have fallen to a three week low on the back of health concerns as tougher restrictions. The oil market is sensitive to the perceptions about global demand, and the sharp rise in Covid-19 cases in Europe and the US has spooked traders. The deterioration in the health situation comes at a time when Libya is in the process of upping oil production, as some sort of political normality is returning to the country – which is putting extra pressure on oil.

Gold is broadly unchanged on the day. The metal is caught between different trading strategies, and that is probably why it hasn’t moved a whole lot today. Gold has historically attracted safe haven funds, but more recently so has the US dollar. The inverse relationship between the dollar and the metal seems to capping gold’s upward move.       


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