Stock markets are set to finish the session in the red as traders remain worried about the possibility of Covid-19 cases rising again as governments ease their restrictions in relation to the lockdowns. 

Europe

The bullish run that equity markets enjoyed last month was largely down to a slowing of the infection rates as well as the reopening of industries. Now that some nations are slowly reopening sections of their economies, there have been increases in the rates of new cases, and that has spooked dealers. The fear factor is nothing like what was seen in early March when the coronavirus was spreading like wild fire, but traders are dumping stocks nonetheless.    

Aston Martin shares tumbled to a new all-time low following the first quarter update. The company left the door open to raising additional capital, and that triggered the sell-off. The troubled company recently raised in excess of £530 million via a rights issue and a private placing, so the very mention of potentially needing additional cash has dented the share price. The Covid-19 crisis prompted the firm to suspend operations, but one of the manufacturing sites has recently reopened. Revenue fell by 60% to £78.6 million, and the operating loss was £76.7 million – which was a great deal wider than the £3.2 million loss posted last year. The new DBX model is on track for delivery in the summer, and manufacturing operations at the plant in Warwickshire are likely to resume in the near term.

TUI Travel revealed downbeat first half numbers, and it was hardly surprising the second quarter took the shine off of the first quarter’s performance. Turnover in the six month period was broadly flat at €6.6 billion, but second quarter revenue dropped by 10% to €2.79 billion. The group incurred a first half loss of €845 million, and keep in mind the loss for the second quarter was €740 million. The travel industry has been one of hardest hit sectors by the pandemic, and TUI have warned that will it might cut up to 8,000 jobs.

The travel sector as a whole is under pressure today as the UK government will require people who enter the country to self-isolate for two weeks. Such a process is likely to deter holiday makers this summer, hence why Ryanair, IAG, easyJet and Wizz Air shares are lower today. Travel is going to be tricky for the foreseeable future, and Ryanair have already said they will introduce strict guidelines. Today the EU confirmed it will not require airlines to leave the middle seat empty on flights, but companies might choose to leave it empty in an effort to protect their staff and customers. Yesterday, Carnival – the cruse operator – said it will lower the headcount by 450.

The house builders were one of the first sectors to recommence work, in a controlled and measured way, as several firms begun work at the constructions sites recently. Taylor Wimpey are taking another step towards normality as the group will reopen its show homes and sales centres from 22 May - for pre-booked appointments only. It is likely that others in the sector will take similar steps in the next few weeks.

European banking stocks are in the red today, and the big two German banks, Deutsche Bank and Commerzbank, are some of the worst performers in the industry. Yesterday evening, Deutsche said it needed to accelerate the cost cutting scheme – which will entail job losses and management taking pay cuts. Commerzbank swung to a first quarter loss of €295 million from a profit of €122 million in the same period last year. The bank took a hit of €479 million on account of the pandemic – this has been common across the industry.

US

Jerome Powell, the Fed chief, said that additional policy measures might be required to prevent lasting damage to the US economy. The central banker cautioned that downside risks are significant, but he said that additional fiscal stimulus might be a price worth paying. In advance of today’s update, there was chatter about negative interest rates, but Mr Powell said that negative rates are not something the Fed are considering. The US tech sector is outperforming as the NASDAQ 100 is up slightly, while the S&P 500 is in the red.    

The latest PPI report paints a picture of weakening demand. The headline reading for April was -1.2%, which was a huge swing from the 0.7% growth posted in March. The core report was 0.6%, and keep in mind the prior reading was 1.4%. PPI is often a frontrunner for CPI, so the depressed inflation rate is likely to fall further in the months ahead.

Las Vegas Sands cancelled plans to up open an integrated resort in Japan. The group didn’t gave a reason for the decision, but the seeing as the tourist trade has taken a battering recently, it’s no surprise the group is not pressing ahead with expansion plans.  

FX

The CMC GBP index is now down 0.3% today, after being in positive territory for much of the session. The UK revealed better than expected growth figures this morning. The preliminary GDP reading for the first quarter was -2%, on a quarterly basis, while economists were expecting a decline of 2.5%. The yearly reading was -1.6%, and traders were anticipating -2.1%. In March, GDP tumbled by 5.8%. Sterling lost ground yesterday on the bank of the UK government extending the current furlough scheme until October, and now it is in the red again.        

Eurozone industrial production contracted by 11.3% in March, and economists were predicting a decline of 12%, but the sharp fall in output is still very worrying. It is likely the April reading will be dreadful too as the lockdowns were in place for much of the month. The dip in the greenback has lifted EUR/USD.  

Commodities

Gold has been assisted by the slide in the US dollar as well as the risk-off strategy of traders. The inverse relationship the metal has with the US dollar is working in gold’s favour today. In addition to that, the declines in stocks has encouraged some traders to pour their funds into the metal as it is deemed to be a lower risk asset.  

WTI and Brent crude saw a jump in volatility in the wake of the EIA report being announced. US oil inventories fell by 745,000 barrels, while the consensus estimate was for an increase of 3.8 million barrels. Gasoline stockpiles dropped by over 3.5 million barrels, while dealers were expecting a draw of over 2 million barrels. The energy contracts initially jolted higher, but then they rolled over even though it was the first time since January oil inventories fell.


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